AAP Finance

Rate cut pressure builds on capex slump

By AAP Newswire

Business investment slumped by a worse-than-expected 2.8 per cent during the December quarter, the latest indication the Australian economy was struggling even before the coronavirus emerged as a threat.

The seasonally adjusted $28.45 billion in new capital expenditure was the lowest quarterly spend in two years and missed consensus expectations of a 0.5 per cent gain.

The result will likely heighten expectations of another RBA rate cut in the coming months, though the central bank's board may hold off at next week's meeting so it can gauge how badly the GDP has been hurt by the coronavirus, bushfires and existing economic softness.

The RBA board will meeting will be on Tuesday and December quarter GDP the day after.

Thursday's Australian Bureau of Statistics capex data follows a disappointing 0.2 per cent fall in the September quarter.

Economic data over the past two weeks has already thrown up sagging December quarter construction figures, as well as continued wage growth stagnation, and an uptick in the unemployment rate.

Building and structures capex fell 5.9 per cent in the December quarter while mining capex fell 2.7 per cent.

One encouraging sign was a 0.8 per cent rise on spending on equipment and machinery since September.

The RBA expects next week's GDP print to show growth of 0.4 per cent for the quarter and 2.0 per cent through the year.

BIS Oxford Economics chief economist Sarah Hunter said Thursday's data indicated capex growth will likely miss the RBA's forecast, fuelling expectations of another rate cut, and heaping more pressure on the federal government to open the purse strings.

"We continue to expect further monetary easing, and the pressure will mount on the government to loosen policy," Dr Hunter said.

The RBA cut the interest rate three times in 2019 to a record low 0.75 per cent with another cut to 0.5 per cent considered an even chance by May.

Another cut to 0.25 per cent by the end of the year is also currently more likely than not, based on market expectations.

Australian companies, meanwhile, appear to have bolstered their spending plans going forward.

Thursday's capex estimate for 2019/20 came in at $120.3 billion, 2.1 per cent higher than the same estimate a year ago.

The first estimate for 2020/21 is also up on last year, 8.8 per cent higher at $100.2 billion.