Billions of dollars in government support and record low interest rates are failing to encourage businesses to sink money into vital capital projects and new equipment as signs indicate the climb out of the coronavirus recession will be slow.
Data from the Australian Bureau of Statistics on Thursday showed private capital spending slipped 3 per cent in the September quarter to its lowest level since March 2007.
Spending on plant and equipment has fallen to its lowest level since March 2007 despite large government incentives and record low interest rates.Credit:Anna Kucera
Spending on buildings and structures slipped by 3.7 per cent while there was a 2.2 per cent drop in expenditure on equipment and plant. Expenditure is down by 13.8 per cent over the past year and by 44 per cent since its peak in 2012.
The federal government wants a business-led recovery from the recession, with Canberra and all states pumping money into infrastructure projects and direct assistance to help firms expand. The Reserve Bank has cut official interest rates to 0.1 per cent and engaged in quantitative easing to take price pressures off banks.
But the ABS data showed falls in capital spending in every state and territory, with the biggest decline, of 7.7 per cent, recorded in Victoria. Capital spending in Victoria is down by 23.7 per cent over the past year, while in NSW it fell by 3.7 per cent to be 21 per cent lower over the year.
Despite government and interest rate support, expectations for the rest of the financial year are muted.
Business are planning to spend a total of $105 billion on buildings, plant and equipment. If this is realised, it would be a 10.1 per cent fall on the $116.8 billion spent in 2019-20.
Spending on plant and equipment feeds into next week's September-quarter national accounts, which should show the economy recovering from the minus 7 per cent hit it took during the June quarter.
NAB senior economist Tapas Strickland said the drop in capital spending would deduct only 0.1 percentage points from the September-quarter GDP result.
"It does not alter NAB's view that third-quarter GDP is likely to bounce back strongly from the second quarter, with GDP rising by around 4.1 per cent on the back of a sharp rebound in consumption," he said.
But research released by ANZ suggests state and territory economies will take some time to fully climb out of the coronavirus recession.
Its quarterly measure of state performance shows NSW, Queensland, Western Australia, South Australia and the Northern Territory are all growing below trend but with signs of acceleration over the past three months.
Only one jurisdiction, Tasmania, is growing better than trend and improving, while the ACT economy is at trend but showing signs of slowdown.
Victoria, hammered by the restrictions put in place to stop its second coronavirus wave, was growing below trend and decelerating.
Senior ANZ economist Cherelle Murphy said the NSW economy was highly vulnerable because of its heavy dependence on tourists and international students.
"NSW services trade is around 40 to 45 per cent of the Australian total. This is above its 32 per cent share of GDP, illustrating NSW's exposure to export services," she said.
"This could be a source of weakness for NSW for some time given international border closures."
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