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Gross fixed capital formation is the value of acquisitions less disposals of new or existing fixed assets. The measure is 'gross' because it has not been adjusted for depreciation (the consumption of fixed assets during the production process). (See box.)
TRENDS IN CAPITAL FORMATION
Between 1990-91 and 1991-92, real gross capital formation per capita fell by more than 6%. This was associated with the recession experienced by Australia in the late 1980s and early 1990s. However, capital formation recovered in 1992-93 and continued to increase through the remainder of the decade. Between 1992-93 and 2000-01, real gross capital formation per capita grew by almost 37%.
SOME DIFFERENCES WITHIN AUSTRALIA
During the past decade, there was strong growth in investment in dwellings (up 19% in real per capita terms between 1990-91 and 2000-01); investment in machinery and equipment also grew appreciably. By 2000-01, machinery and equipment accounted for about 36% of total private capital formation. Capital formation is undertaken by three sectors: general government, and private and public corporations.
Real gross fixed capital formation per capita(a)
Private real gross fixed capital formation per capita(a), by type of asset
Source: Australian System of National Accounts.(SEE FOOTNOTE 1)
The private sector consistently contributed most to overall capital formation during the past decade. After an initial decrease in the early 1990s, private sector investment recovered and grew by 46% during the decade to 2000-01. The private sector's contribution to overall gross fixed capital formation rose from just over 74% in 1990-91 to about 82% in 2000-01. Government and public corporations made a smaller contribution to total real gross fixed capital formation per capita. Government investment accounted for about 12% of the total investment figure in 2000-01, while public corporations accounted for about 7%.
Investment patterns varied considerably from industry to industry during the 1990s. Real gross fixed capital formation in Communications rose by an average of almost 11% per year. Investment also increased substantially in Finance and insurance and Cultural and recreational services, both of which experienced growth of almost 10% a year.
Real gross fixed capital formation per capita(a), by sector
FACTORS INFLUENCING CHANGE
The economy's strong growth following the recession in the early part of the 1990s underpinned the increase in gross fixed capital formation in the 1990s.
Changes in technology, especially in information technology, have also influenced the increase in investment activity. For example, the computerisation of many manufacturing systems and processes may have driven increases in investment in machinery and equipment.
LINKS TO OTHER DIMENSIONS OF PROGRESS
Capital formation supports higher levels of production and income generation.
Gross fixed capital formation can be financed by either Australian saving or foreign saving.
See also the commentaries National income, National wealth, Saving, and Productivity.
1 All data in this commentary are derived from Australian Bureau of Statistics 2001, Australian System of National Accounts 2000-01, Cat. no. 5204.0, ABS, Canberra.