DEUTSCHE BANK: The missing link for Australia's economic transition remains

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Yesterday’s release of business investment data showed again that Australia’s economic performance continues to suffer from a handbrake of falling mining investment.

No surprise.

But what will continue to frustrate the RBA, the treasurer and prime minister, is that the non-mining sector of the economy has continued to show no inclination to step up to the plate and invest.

Adam Boyton, Deutsche Bank Australia’s chief economist, highlighted this in a note to clients, describing the data as “a very weak outcome”.

Non-mining investment is the missing link in Australia’s growth outlook.

We know via the NAB business survey that business conditions in the economy are strong and above the long-run average for the survey. That has raised hopes that the non-mining sector would, as a result of this and the current solid conditions for trading and profitability, increase its investment intentions.

No such luck. Boyton’s note shows neatly that non-mining investment has also turned lower as mining has pulled back recently.

But there was some hopeful signs in yesterday’s release of the 4th estimate of CAPEX intentions. The data showed an increase of 5.6% in non-mining investment plans over the 3rd estimate. That sounded like good news. But Boyton suggests this is actually a disappointing outcome.

Boyton said:

The 4th reading is 5.6% above the 3rd reading for 2015-16, versus the average upward revision from reading three to reading four over the past 15 years of 6.1%. That is, from a soft starting point there has been a little less than the usual positive momentum in the evolution of non-mining investment expectations over the past three months.

That’s an incredibly disappointing result.

But it does fit neatly with the divergence between business conditions and confidence in the NAB survey. Conditions are strongly above average while confidence languishes below average.

Business doesn’t invest if its not confident.

Malcolm Turnbull took his run at the top job in part because he said businesses needed to have more confidence. He is clearly having political success on many fronts at the moment. This data shows that he still has a job to do.

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