Australia’s mining investment boom is well and truly over, but other parts of the economy aren’t quite ready to pick up the slack.
Total new capital expenditure (capex) was down 5.2 per cent in the December quarter to $38.29 billion, seasonally adjusted, Australian Bureau of Statistics figures show - the lowest level since the global financial crisis.
It was the biggest quarterly fall in business investment in over two years and was led by a big drop in mining related investment. Investment in equipment, plant and machinery was down 5.5 per cent in the quarter and mining sector capex fell 5.5 per cent.
RBC Capital Markets currency strategist Michael Turner said it will be a difficult transition from a mining investment-led economy to one that is driven by other sectors, such as housing construction.
"Everyone is looking for signs of activity outside of mining. There's a faint heartbeat there but it's not setting the world on fire," he said.
"Meanwhile, investment activity in the mining sector is slowing pretty quickly if these numbers are to be taken at face value."
The numbers also show the mining investment boom, the main driver the the economy in recent years, has peaked.
"Those signs have probably been around for a few quarters now, but this is one of the more timely indicators that suggest there will be a fairly reasonable contraction in 2014/15," Mr Turner said.
"The level of investment in the mining sector continues to decline and seems likely to contract at a faster pace over the next several quarters."
The ABS data also shows businesses collectively expect to invest $124.88 billion in the 2014/15 financial year, which is 17.4 per cent lower than the first estimate for 2013/14, the ABS said.
St George economist Janu Chan said the outlook for mining and non-mining investment looks bleak, even though a decline in mining and resources investment was to be expected.
"The declines in actual spending for non-mining (manufacturing and other) for the quarter were disappointing, and indicate that any recovery in non-mining investment is proving to be slow," she said.
"Nonetheless, expected expenditure still implies that a pickup in non-mining investment is occurring."
Ms Chan still expects the Reserve Bank of Australia will not to move the cash rate this year.
"The gradual improvement in non-mining capital expenditure implied by today's data should be enough to keep the RBA on the sidelines, although we recognise that there is significant uncertainty surrounding the estimates for spending in 2014/15," she said.
By Jason Cadden