Capex. Investment outlook the worst since 2010-11

New investment intentions figures point to a shocking financial year ahead with mining investment down 22 per cent, manufacturing investment flat, and other investment down 16 per cent.

The Bureau of Statistics figures, collected from the chief financial officers of the major companies, are bleaker than the soundings of the Reserve Bank board which in its last minutes pointed to "signs that non-mining business investment was rising in some parts of the economy".

They are also much bleaker than those of the federal Treasury, which in the May budget forecast a drop in total investment of just 5 per cent in 2016-17.

The ABS figures point to an overall drop in investment of 17 per cent, from $127.5 billion in 2015-16 to just $105.2 billion in 2016-17. They would make 2016-17 the worst year for business investment since 2010-11.

As is traditional, the June quarter estimates for the financial year ahead were higher than the March and September quarter estimates.

Actual investment slipped 5.4 per cent in the three months to June, to be down 17.4 per cent over the year and down 29 per cent from the peak in December 2012. Mining investment slid 36 per cent over the year and 16 per cent over the quarter. Non-mining investment was flat over the year and up 2.1 per cent over the quarter.

Western Australia accounted for the bulk of the slide over the past year, investing just $8.6 billion in the June quarter of 2016, down from $13 billion a year before. Investment in NSW climbed from $7 billion to $7.6 billion. Investment in Victoria remained steady at $4.8 billion.

Commsec chief economist Craig James said the weak figures meant the Reserve Bank might well cut interest rates again, at its Melbourne Cup Day board meeting in November.

"The question is whether it will do any good," he said. "Certainly retailers believe that cuts have lost their potency."

The figures will weigh on the June quarter economic growth number due out next Wednesday with many analysts forecasting quarterly growth of just 0.3 per cent, down from an unusually high 1.1 per cent in the March quarter.

Separate Reserve Bank figures released on Thursday may lend support to investment. Its index of commodity prices climbed a further 1.5 per cent in August after climbing 3.9 per cent in July. It has been climbing since February.

In The Age and Sydney Morning Herald

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GDP. Jump in exports hides weak economy

The Australian economy performed better than expected in the three months to September, but no-one is celebrating.

The biggest rebound in exports in 15 years pushed up the September quarter growth rate to 0.9 per cent, a result not bettered for three years. But were it not for the unusual jump in exports, the economy wouldn't have grown at all.

Domestic demand shrank in the September quarter, with inflation-adjusted spending in NSW, Queensland, Western Australia, the Northern Territory and Australian Capital Territory turning down, and spending growing only in two states: Tasmania and South Australia. Spending in Victoria was flat.

"Today's national accounts show an economy in transition," Prime Minister Turnbull told parliament.

"We have had the great stimulus from the terms of trade, and the mining industry will continue to be strong and productive, but that big investment hit has come and it has gone."

Private investment slid 2.9 per cent in the quarter and 4.3 over the year. Public investment slid 9.2 per cent in the quarter and 7.9 per cent over the year. Household spending climbed 0.7 per cent in the quarter and a respectable 2.7 per cent over the year...

 

 

Treasurer Scott Morrison said businesses were "consolidating" and preparing to invest.

"We do obviously want to see business investment in the non-mining sector grow in the future and we believe that will occur in the years ahead, but only if as a country we remain focused on policies that support growth and jobs," he said.

The annual economic growth rate of 2.5 per cent is well down on the 2.75 per cent the treasury says is needed to absorb unemployment and is no faster than the 2.5 per cent recorded a year ago. During the mining booms growth ranged from 3 to 5 per cent.

 

 

Shadow treasurer Chris Bowen said the economy was weaker than the figures suggested.

"Without strong mining exports, the economy would have clearly struggled to generate much growth at all in the September quarter," he said.

In Perth Reserve Bank governor Glenn Stevens said not too much should be read into the number.

"Let's not overplay the significance, but the economy is growing, and I think you would still say the outlook is for continued moderate growth," he said.

The national accounts show Australia's terms of trade slipping a further 2.4 per cent in the quarter and 10.5 per cent over the year. A measure of export prices relative to import prices, the terms of trade directly impacts on the budget through its effect on the incomes of exporters.

The forecasts in the May budget were built around an iron ore price of $US48 per tonne. Futures trading has marked it down to less than $US40 a tonne, suggesting a downgrade when the budget update to be released on December 15.

Each $US10 fall in the price of iron ore is thought to cost the government around $2.5 billion per year in lost revenue.

In The Age and Sydney Morning Herald

 

 

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Twin Peaks. The graph that tells Australia's economic story

Ten months ago, surrounded by finance ministers and the financial elite from the world's 20 biggest economies, Australia's Treasurer Joe Hockey was riding high.

"My finance minister colleagues and I are resolute in our determination to use all policy levers to generate growth and jobs," he said. He had just made "Go for Growth" the unofficial slogan of the Brisbane G20 leaders meeting.

The Australian His own economy was growing faster than Britain's, faster than the United States', faster than Europe's, and faster than every other significant developed economy.

He exhorted his colleagues to try harder, to do "whatever it takes to boost growth and create new jobs". And he got them to commit to measures that would boost the size of their combined economies by more than 2 per cent over the next three years, "an unprecedented break from business as usual".

He is back at the G20 this weekend, in Ankara in Turkey. He is no longer the host and he is no longer riding high.

Australia's economy is growing more slowly than Britain's, more slowly than the United States', more slowly than Europe's, and more slowly than just about every other developed economy.

It could be worse, he told a Sydney press conference before he left on Wednesday. Australia could be in recession, like Canada. The figures he presented had Australia just whiskers away from recession. It's economy grew by just 0.2 per cent in the June quarter, mere notches above zero.

How did we get from there to here? If you want just one graph to tell the story, you can't go past the Reserve Bank's monthly update of commodity prices...

It's a picture of twin peaks. The price of the things Australia sells stayed low right up until the mid-2000s, then suddenly doubled, soaring to undreamt of heights in 2008 before collapsing in the financial crisis, then soaring back to an even greater height before collapsing from mid-2011. It's been plummeting nearly every month since, falling a few percentage points each time. Last month it fell 3 per cent.

 

 

The more commodity prices plunge, the more our national income slides unless it is counterbalanced by rising volumes of the things we are selling.

That's exactly what's been happening for the past two years. Rising volumes of exports have been offsetting the lower prices we get for them, until the June quarter when an unusually low volume of exports revealed there wasn't much else driving the economy.

As economist Andrew Charlton puts it: "The underlying data has been weak for at least two years."

Mining firms are slashing their investment and non-mining firms aren't lifting theirs fast enough to take up the slack. Low interest rates have been stoking a housing boom but not an investment or spending one. Consumers are shopping at a restrained pace and putting away money just in case. Household saving is at heights not seen in a generation.

The Reserve Bank governor Glenn Stevens believes there may be little point in cutting interest rates.

"It is not that monetary policy is entirely powerless, but its marginal effect may be smaller, and the associated risks greater, the lower interest rates go from already very low levels," he told a recent gathering.

He would like the government to spend big on infrastructure, but it's not keen to do that for financial reasons, announcing next to nothing new in the May budget. Fortuitously, it did spend big in the June quarter as it took possession of some really big pieces of military equipment. The big whack of cash was probably enough by itself to keep economic growth positive.

The dollar is sliding in line with sliding commodity prices, falling below 70 US cents after peaking at 105. It will help. Our businesses will find it easier to sell goods overseas, but we'll have to pay more for the things we import.

So far employment is holding up. One of the reasons is that we've been making ourselves cheap by accepting extraordinarily low pay increases. Echoing the Treasurer, one of the government departments sent a memo to its staff this week extolling the virtues of a 1.5 per cent pay offer. It's exact words: "It's better than 0.0 per cent."

In The Age and Sydney Morning Herald

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