Investment in a slump, says RBA
The level of investment among Australia's non-mining businesses is at its lowest since the 1990s recession because the global financial crisis has made many executives reluctant to start taking risks again, the Reserve Bank says.
The record-low levels of investment come despite banks saying they are willing to lend and despite interest rates being at record lows.
Household spending has also slowed to the point where it is no longer running ahead of household incomes.
Philip Lowe, RBA deputy governor, says he expects the impact of the global financial crisis to linger for a long time, which may impede the much needed rebalancing of the Australian economy.
Mining investment was forecast to decline by 3 percentage points relative to gross domestic product in coming years, so non-mining investment would have to pick up a lot, he said.
"While recently we have seen some return to risk-taking in financial markets, potential owners of real capital in the developed economies have not yet been prepared to step forward in significant numbers and take a risk," Dr Lowe said.
"Consumer demand has been soft and businesses have wanted to wait and to see what happens ... this change in corporate attitudes is, I suspect, one of the enduring but underappreciated consequences of the financial crisis."
While the Australian economy had largely been shielded from the financial crisis by developments in the resources sector, some areas of the economy were clearly feeling the impact, he said.
That helped explain why investment was weak outside the resources sector.
"[Australia's] non-mining investment has made little contribution to growth in the overall economy," he said. "This is at a time when mining investment is no longer increasing."
However, Dr Lowe - who is tipped to become the next RBA governor - said non-mining investment was still likely to pick up "to at least high-single-digit rates" within the next couple of years.
This would occur from an expected depreciation of the exchange rate, an improvement in business confidence and "the very low level of interest rates". He said: "This depreciation of the Australian dollar since April is a welcome development and a further depreciation would be helpful in rebalancing growth in the economy."
Some economists said the RBA's view that parts of the non-mining economy had improved in recent months - such as the recent lift in housing activity and the boost in business confidence - was a sign there would be no further rate cuts. "With the bank's view on non-mining investment looking to have improved in recent months we feel more confident with our view that there will be no further interest rate cuts and that rates will remain on hold for some time," said ANZ senior economist Felicity Emmett.
But others were less certain.
"It's still a work in progress," said NAB's David de Garis. "As that story unfolds further, the RBA will retain a soft monetary policy easing bias as it monitors what should be stimulatory effects over time from a hoped-for lower exchange rate ... as well as the one factor under its direct influence - low lending rates."