Capex slide signals end of mining boom
The mining investment boom is in its final days, but economists say there is still strength in the Australian economy with business spending expectations remaining upbeat.
While private capital expenditure for the March quarter was weaker than expected, Bureau of Statistics figures showed stronger spending expectations for the 2013-14 financial year, including a slight lift in mining investment projections.
The figures came as building approvals rose a seasonally adjusted 9.1 per cent in April, following a 5.5 per cent fall in March.
Approvals soared 18 per cent for private sector units and rose 2.5 per cent for private sector houses from the previous month.
Economists said the data reduced the likelihood the Reserve Bank would cut rates again at its board meeting on Tuesday, with financial markets lowering expectations of a 25-basis point cut to 18 per cent.
HSBC's chief economist for Australia, Paul Bloxham, said the estimates pointed to a plateau in mining investment rather than a sharp fall. "The mining story is still supportive of growth. That's important because that means there is more time for the rest of the economy to start picking up and take over in terms of being the key drivers of the economy," he said.
Mr Bloxham said the rise in building approvals was consistent with a pick-up in the non-mining sectors of the economy. Together with improved retail sales in the first quarter, they were also reflective of the impact of lower interest rates on the economy, he said.
Capital expenditure for the March quarter fell 4.7 per cent - the sharpest fall since the financial crisis - and was led by a fall in building and equipment investment. Economists had expected a 0.5 per cent rise.
Projected business spending for this financial year was $163 billion, 2.6 per cent higher than the previous year.
Second estimates for the following financial year were $156.5 billion, 9.8 per cent lower than corresponding estimates the year before but 3.4 per cent higher than first estimates.
Miners lifted their spending projections 2.7 per cent higher to $101.9 billion.
JPMorgan economist Ben Jarman said the weak March quarter data was expected to put pressure on first-quarter GDP figures released next Wednesday.
But looking ahead he said the capital expenditure estimates were "fairly reasonable". "In the context of a supposedly very sharply fading mining investment story and some weakness from manufacturers, [it] was probably a slightly more upbeat position than people were fearing," Mr Jarman said.
ANZ's head of Australian economics, Justin Fabo, said the weakness in mining investment was more likely to be reflected from mid-2014, which is beyond the current figures.
"While mining investment looks to be holding up in 2013-14 and may not have peaked yet, more of this represents very large gas projects, which have a relatively higher import component than other mining projects [and] so will benefit the domestic economy less," Mr Fabo said.
Deutsche Bank economist Phil O'Donaghoe said although the fall in 2013-14 investment intentions was expected, it was important to note that non-mining investment was driving the drop.