Business investment plummets

Investment by companies plunged more than feared in the first quarter of 2009, underscoring how far business expansion has gone into reverse, likely tipping Australia into recession.

Private capital expenditure fell a seasonally adjusted 8.9% in the first three months of the year, tumbling from the 6 per cent pace of expansion recorded in the December quarter of 2008. A consensus of analysts surveyed by Bloomberg tipped a 6 per cent fall for the first quarter.

The weaker business investment figure will drag on overall economic growth, adding to the likelihood that gross domestic product will post a negative result for the March quarter.

Provided the December quarter’s minus-0.5 per cent contraction is not revised into a positive figure at next week’s release of GDP data, Australia will notch up two quarters of declines, marking the country’s first recession in about 17 years.

A drop in business investment is also expected to contribute to a rise in unemployment, with analysts expecting the jobless rate to jump to 9 per cent by the end of 2010.

Equipment, plant and machinery spending dropped 10.8 per cent, seasonally adjusted, in the March quarter.

Estimates are gathered in a series of seven quarterly surveys, the first in January and February before the start of the financial year in July, and the seventh immediately after the financial year ends.

The sixth estimate of expenditure for 2008/09 is $99.259 billion, which is 13.2 per cent higher than the sixth estimate for 2007/08.

The second estimate of expenditure for 2009/10 is $76.925 billion, which is 11.7 per cent lower than the second estimate of 2008/09.

The backlog of projects undertaken by business in the past five quarters will probably leave a surfeit of infrastructure, notably in the mining industry.

smh article