Private sector capital expenditure fell again in the March quarter. Down 4.4 per cent after a fall of 1.7 per cent in the December quarter. In trend terms, business investment has fallen for 11 straight quarters, something that has not been seen since the early 1990s recession.
Since the Federal election in September 2013, when Prime Minister Abbott exclaimed that “Australia is open for business”, private sector business investment has fallen a thumping 11.1 per cent. And what is disconcerting is that there are no signs of a bottom.
The survey of business investment includes data for the expected level of business investment for the year ahead. That update suggests a further 20 per cent plus slump in capital expenditure into 2015-16. Rarely does one data release reveal a seismic shift in the economy but this Capex result just might be one of these rare offerings.
What is making the big picture all the more disconcerting is the slump in public sector infrastructure spending. Debt-shy governments are paring back infrastructure spending just when it is needed most. When the national accounts are released tomorrow, public sector construction spending is likely to be tracking close to a record low as a share of GDP.
Over the last few months I have been quite optimistic about the economy. This was on the back of low interest rates, the low Aussie dollar and improving global conditions. That glass-half full attitude is now evaporating.
The door remains open for the RBA to cut interest rates again. Clearly. While there remains some good economic news for housing construction, consumer spending, global economic growth, commodity prices and household wealth, the frankly dismal performance and outlook for business investment will leave a hole in the economy for the next year or two that will be very hard to counter.
This is especially so with wages growth tracking at record lows, which is one of the other concerning factors and weak wages acts as a python squeeze on consumer spending.
I don’t think the RBA will be cutting interest rates again, but I would not fall off my Jason recliner if it did.