Australia business investment slips again, outlook uninspiring

[SYDNEY] Australian business investment has fallen for the fourth straight quarter as miners continue to cut back, but other sectors narrowly upgraded their spending plans for the year in tentative signs of recovery.

Thursday's figures from the Australian Bureau of Statistics showed investment slipped 2.1 per cent in the fourth quarter to A$27.6 billion (S$29.98 billion), when analysts had looked for a fall of only one per cent.

The decline was entirely driven by the mining sector where spending fell over 9 per cent, even as new investment in manufacturing climbed 3.1 per cent.

Importantly, spending on equipment, plant and machinery did edge up in the fourth quarter which adds to expectations economic growth bounced after a shock contraction in the previous quarter.

Figures due next week are generally expected to show the economy grew around 0.6 per cent to 0.7 per cent last quarter.

While economists are convinced that Australia has dodged its first recession in 25 years, the data are yet to show a meaningful recovery in the non-mining economy.

Indeed, spending plans for 2017/18 came in at A$80.6 billion, the lowest in a decade and under the A$84 billion many analysts had looked for.

Again all the weakness was in mining with investment in other parts of the economy unable to offset the plunge.

"That shows the momentum is still down. That's not what you want. What you want to see is a rise in those estimates," said Shane Oliver, chief economist at AMP Capital.

"I think it keeps alive the prospect for another rate cut although the RBA has set a very high hurdle for taking rates lower."

After cutting rates to a record low of 1.5 per cent last year, the Reserve Bank of Australia (RBA) has been on hold in the expectation that growth in the A$1.6 trillion economy will accelerate to around 3 per cent.

Just this week, RBA Governor Philip Lowe argued the drag from mining was almost over and cutting rates again would only serve to inflate a debt-driven bubble in the housing market.

Businesses, however, do not seem keen to co-operate.

"Even though the mining capex drag is fading away, the recovery in non-mining is really tepid at this point," said Ben Jarman, an economist at JPMorgan.

"We are seeing global business sentiment surveys rally quite a bit but it doesn't appear like Australian firms are following suit with their capex plans at the moment."

REUTERS