1.4 Current rates of investment are likely to be driven partly by cyclical factors. However, industry structural change toward (less capital intensive) services industries, weak growth in demand (and with this little pressure on output prices), changes in the investment choices of businesses themselves, and enduring perceptions of risk from the GFC are also likely to be affecting the rates of measured capital investment. Thus, while rates of investment should ultimately adjust somewhat and help support output and LP growth, the adjustment period may continue for some time. The impact of structural change on productivity Structural change, or the change in industry composition over time, can affect productivity growth, depending on the distribution of resources in the economy and the level of productivity in each industry. As noted above, Australia has seen a longterm shift of economic activity toward more labourintensive service sectors, which on average have a lower level of productivity (figure 8). With the end of the investment boom in mining, labour has begun shifting back to industries that have lower levels of productivity. This compositional change towards more labourintensive industries is likely to reduce LP growth during the adjustment period. Looking longer term, shifts in industry composition are a major factor influencing the current modelling reference case, which projects that the contribution from Commission’s aggregate LP to real GDP growth to 205960 will be lower, at 1.3 percentage points on average, than the historical average from 197475 to 201314 of 1.7 percentage points (Gabbitas and Salma 2016).
1.4 Current rates of investment are likely to be driven partly by cyclical factors. However, industry structural change toward (less capital intensive) services industries, weak growth in demand (and with this little pressure on output prices), changes in the investment choices of businesses themselves, and enduring perceptions of risk from the GFC are also likely to be affecting the rates of measured capital investment. Thus, while rates of investment should ultimately adjust somewhat and help support output and LP growth, the adjustment period may continue for some time. The impact of structural change on productivity Structural change, or the change in industry composition over time, can affect productivity growth, depending on the distribution of resources in the economy and the level of productivity in each industry. As noted above, Australia has seen a longterm shift of economic activity toward more labourintensive service sectors, which on average have a lower level of productivity (figure 8). With the end of the investment boom in mining, labour has begun shifting back to industries that have lower levels of productivity. This compositional change towards more labourintensive industries is likely to reduce LP growth during the adjustment period. Looking longer term, shifts in industry composition are a major factor influencing the Commission’s current modelling reference case, which projects that the contribution from aggregate LP to real GDP growth to 205960 will be lower, at 1.3 percentage points on average, than the historical average from 197475 to 201314 of 1.7 percentage points (Gabbitas and Salma 2016).
productivity-review-supporting1.docx