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Capex shows mining no longer drives the economy

Editorial
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Any trace of the boom in mining investment is gone, with capital expenditure (capex) results released yesterday showing a fall in spending throughout mining and the rest of the economy.

The Bureau of Statistics reported actual business investment had dropped 5.2 per cent in the December quarter, to $38.29 billion.

This was the biggest quarterly fall in business investment in over two years, and the lowest level since the global financial crisis.

Investment in equipment, plant and machinery fell 5.5 per cent, and the mining sector capex fell 5.5 per cent.

Economists are concerned over the slump in projected investment for FY 2015, which has been estimated by UBS Australia to fall 11 per cent, far greater than the 2 per cent previously forecast by Treasury.

JP Morgan chief economist Stephen Walters said yesterday’s data suggests that falling business investment will be a significant drag on Australia's economic growth next financial year and longer.

"The data reveals that firms in mining continue to scale back their spending intentions, albeit more quickly than we had anticipated, while those outside the mining sector are treading water - at best," he wrote in his analysis.

"The planned large falls in spending in mining are swamping the slightly higher intentions elsewhere, with manufacturing still a dead-weight."

The numbers also showed the mining investment boom, which has been the main driver of the economy for almost a decade, had peaked.

RBC Capital Markets currency strategist Michael Turner said it will be difficult for Australia to make the transition from a mining investment-led economy to one driven by other sectors.

‘‘Everyone is looking for signs of activity outside of mining. There’s a faint heartbeat there but it’s not setting the world on fire,’’ he said.

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