Australian businesses plan to cut investment in the next 12 months by the most on record as the economy struggles to find new sources of growth after the end of a decade-long mining investment boom. The currency slumped.
Capital spending fell 4.4 percent in the first quarter from the final three months of last year, data showed Thursday, double the median forecast for a 2.2 percent drop. Companies predicted they would invest A$104 billion ($80 billion) in the year ending June 30, 2016, a 25 percent fall from the estimate a year earlier and the largest decline since at least 1990.
“The capital expenditure outlook deteriorated from already bleak three months ago, to now recessionary,” George Tharenou, an economist at UBS Group AG, said in a research report. “This data is so bad it would worry the Reserve Bank of Australia and now raises the risk they cut rates again,” possibly before second-quarter inflation data is released in July.
The central bank has cut its benchmark interest rate to a record-low 2 percent as it struggles to drive a rebalance of growth toward industries like manufacturing, residential construction and services. Australia, an engine room of the decade-long global commodity boom, is forecasting a 90 percent plunge in spending on projects, calling time on its biggest resources bonanza since the 1850s gold rush.
Australian mining investment in 2015-16 is projected at A$52.2 billion, down 35 percent from the year-earlier estimate, today’s report showed.
Traders boosted bets to price in about a 50-50 chance the RBA will lower the key rate by another quarter point in November. That helped send the local dollar down to trade at 76.77 U.S. cents at 2:18 p.m. in Sydney from 77.54 cents before the release. The currency is on track for its steepest monthly decline since January.
Today’s report showed spending on buildings and structures slumped 6.5 percent last quarter. Company investment in new plant and equipment declined 0.5 percent.
“The transition toward investment in the non-mining sectors remains quite some time away,” Felicity Emmett, an economist at Australia & New Zealand Banking Group Ltd., said in a research report. “The further decline, from an already weak outlook suggests that businesses are severely lacking in the confidence required to lift investment.”
After a collapse in prices from oil to iron ore, the value of Australia’s approved and financed mining and energy projects is forecast fall to about A$15 billion in 2017, from A$226 billion at the end of April, the Department of Industry and Science said Wednesday.
Planned iron ore projects worth at least A$10 billion have been canceled since October. Billionaire Gina Rinehart’s Roy Hill -- due to ship later this year -- is Australia’s last remaining mining project being developed worth A$5 billion or more.