Sputtering growth risks rate cut

THE glacial pace of growth in non-mining business investment won’t boost the economy and increases the chance of an interest rate cut this year, economists have warned.

Investment in capital goods, including buildings, structures, machinery and equipment, fell 2.1 per cent to $27.6 billion in the three months to December.

Excluding a 9.3 per cent slump in mining investment, non-mining investment – a category including manufacturing and services – rose 1.9 per cent in the quarter.

According to the Australian Bureau of Statistics, overall investment is expected to fall 3.9 per cent to $80.6 billion in the year to June, its lowest level in a decade. But services sector investment is expected to jump 8.3 per cent to $46.8 billion next financial year.

Capital Economics chief economist Paul Dales said the investment plans were disappointing given they were formed when rising commodity prices were set to bring in more money.

“Of course, if commodity prices remain high, then businesses may yet become more upbeat. But even in that scenario, we suspect they will pocket the money rather than boost capex,” Mr Dales said.

Royal Bank of Canada analyst Michael Turner said the tepid outlook for non-mining investment increased the risk of a rate cut. “We continue to see the risks as skewed toward one final cut from the RBA in the second quarter,” he said.