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Business investment outlook stays weak

AAP logoAAP 1/12/2016 Garry Shilson-Josling, Economist

Business investment fell again in the September quarter to be down by 35 per cent from its mid-2012 peak, and the outlook is not improving, with capital spending looking set to drop sharply in the current financial year.

New investment in buildings and structure, and equipment plant and machinery, fell 4.0 per cent in the September quarter to be 13.7 per cent lower than a year earlier after adjusting for regular seasonality and price changes.

National Australia Bank economist Ivan Colhoun said the figures foreshadowed news of soft economic growth when the gross domestic product (GDP) figures are released by the Australian Bureau of Statistics on Wednesday.

"This result should reinforce expectations of a weak Q3 (third quarter) GDP outcome (a small negative q/q seems likely) though important further partial indicators of GDP are released over the next few days," he said.

The same survey shows that the expected value of investment in 2016/17 is $106.9 billion, compared with the final estimate for 2015/16 of $127.7 billion.

But the fall in 2016/17 may be even larger than the 16 per cent drop implied by those numbers, says JP Morgan economist Ben Jarman.

"After the application of realisation ratios (loosely accounting for the average survey bias of respondents), total nominal spending is on track to contract 19 per cent in the current financial year," he said.

"This is similar to the contraction delivered in 2015/16, and the drag is a little less intense than it looked in earlier survey readings."

ANZ economist Felicity Emmett said the survey projections pointed to only modest growth in non-mining investment and sharply lower mining investment in 2016/17, and that next week's growth figures would be weak.

"The weakness in Q3 equipment investment is disappointing, coming after a string of weak partial data, suggesting that Q3 GDP next week will be quite soft," Ms Emmett said.

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