Photo: Matt Cardy/ Getty Images.

The latest piece of Australia’s GDP jigsaw puzzle has just arrived, and it’s not looking good for economic growth in the September quarter.

According to the ABS, private sector business capital expenditure, or CAPEX, tumbled 4% to $28.03 billion last quarter in seasonally adjusted terms, missing forecasts for a smaller decline of 3%.

That drop followed a contraction of 5.2% in the June quarter that was initially reported as a drop of 5.4%.

From the September quarter last year, CAPEX has now fallen by 13.7%.

All sectors — mining, manufacturing and “others” (predominantly services) — recorded a decline in CAPEX over the quarter.

Mining CAPEX fell 7.2% to $9.8 billion, the smallest total since the first quarter of 2010, taking the total decline over the past year to 35.1%.

Other industries saw CAPEX fall by 1.9% to $16.2 billion, the first quarterly decline seen in four quarters. From a year earlier it still increased by 6.4%.

Manufacturing CAPEX, the smallest of all sectors surveyed, fell by 4.9% to $2.04 billion, leaving the decline over the past year at 6.3%.

New CAPEX on building and structures fell by 5.7% to $15.6 billion, leaving the decline on a year earlier at 24.3%.

Adding to the risk of a negative growth quarter in next weeks Australian GDP report, equipment, plant and machinery expenditure — a figure that feeds into the national accounts — fell by 1.9% to $12.4 billion, leaving it up 4.6% over the year.

Not a good omen for GDP, particularly following underwhelming retail sales volumes and construction work done in the September quarter.

“We previously estimated that GDP growth was between 0.0% and 0.5% q/q, but after these figures we have settled on a forecast of 0.0%,” said Paul Dales, chief Australia and New Zealand economist at Capital Economics. “A fall is clearly possible.”

According to ANZ’s economics team, the decline in equipment, plant and machinery expenditure will subtract 0.1 percentage points from quarterly GDP.

Adding to concerns, CAPEX is not expected to get much better in the remainder of the 2016/17 financial year.

The fourth estimate of 2016/17 CAPEX spend — where spending is heading — came in at $106.9 billion, a slight improvement on the third estimate of $105.2 billion but below expectations for a lift to $110 billion.

It was also 14.3% weaker than the fourth estimate offered for the 2015/16 financial year.

Source: ABS

However, it wasn’t all bad news with the fourth estimate of expected expenditure from “other” industries — predominantly services — rising to $58.5 billion, up 4.7% from the third estimate.

A glimmer of hope for Australia’s economic transition, if only a small one.

Over the same period, manufacturing expenditure is expected to total $8.5 billion, up 0.1% on the third estimate, while that for the mining sector is now seen at $39.9 billion, a decline of 3.2% on the prior estimate.

Though weakness in mining sector investment is not unexpected — it’s now been going on for several years following the peak of the mining infrastructure boom — the decline in expected CAPEX is slightly disappointing given some of the enormous gains seen in commodity prices over the September quarter.

Despite the weak nature of the CAPEX report — both looking backwards and ahead — Dales suggests that the RBA is unlikely to be extremely worried ahead of its last policy meeting for the year on Tuesday, December 6.

However, he says that “it must be getting a little concerned that the economy isn’t quite as strong as it thought”.

Su-Lin Ong, head of economics and fixed income strategy for Australia and New Zealand for RBC Capital Markets, believes they should, suggesting that the only word to describe today’s report is “disappointing”.

“Today’s survey suggests that non-mining business spending is unlikely to be taking the baton anytime soon”, she says, referring to the continued unwind in mining sector expenditure.

“This may be particularly challenging further into 2017 when the residential construction cycle peaks,” says Ong.

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