The problem of falling business investment and Australia's weakening economy

Photo: Michael Hickey/ WireImage via Getty Images.

Falling business investment, as infrastructure spending from mining investment boom continues to decline, is one cause of Australia’s weakening economy.

The annual GDP growth is now just 1.8%, the lowest since March 2009, after a 0.5% fall in the September quarter.

“This is the 12th consecutive quarter that new business investment has declined,” says Treasurer Scott Morrison.

“We know that mining investment is coming off steeply given the large scale of the projects that are coming to completion and the fact is that despite recent improvements, commodity prices remain well below the highs of a few years ago.”

This chart from AMP Capital, using Australia Bureau of Statistics (ABS) numbers, shows growth across sectors. The dark blue line is business investment.

According to the ABS, mining investment fell for the twelfth consecutive quarter, dropping 10.6%.

At its peak in the December quarter of 2012, mining investment contributed 9.4% of GDP. This now just 3.4%.

At the same time, non-mining investment’s contribution has risen to 9.0% from 7.5%.

AMP Capital Economist Diana Mousina says there was a marginal lift in private business investment of 0.1%, with a rise in machinery and equipment investment offsetting a 1.3% drop in non-residential construction.

“However, underlying private investment was actually weaker with the headline being boosted as a large asset transfer from the private to the public sector in the June quarter washed through,” she says.

Morrison sees this subdued non-mining investment as one of the biggest challenges.

“We need to support businesses to invest in this country,” he says.

“We need investment that will provide more working hours and higher wages for employees and do its part to take the place left from the decline in mining investment.”

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