{"id":32425,"date":"2015-11-26T11:16:43","date_gmt":"2015-11-26T01:16:43","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=32425"},"modified":"2015-11-26T11:16:43","modified_gmt":"2015-11-26T01:16:43","slug":"australia-investment-spending-contracts-sharply-recession-looming","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=32425","title":{"rendered":"Australia – investment spending contracts sharply, recession looming"},"content":{"rendered":"

\t\t\t\tThe Australian Bureau of Statistics (ABS) published the September-quarter – Private New Capital Expenditure and Expected Expenditure, Australia<\/a> – data today as part of the sequence of data releases relating to next Wednesday’s release of the third quarter National Accounts. Today’s release is especially important given the earlier signs that expected investment would plummet in 2016 and drive economic growth towards recession. Today’s release confirms the worst with Total new capital expenditure falling by 20 per cent in the 12 months to September 2015, investment in Building and structures falling by 23.6 per cent over the same period, and investment in Equipment, plant and machinery falling by 12.7 per cent. In the September-quarter alone, Total new capital expenditure fell by 9.2 per cent. Expected investment for 2015-16 is now 20.9 per cent lower than the equivalent figure 12 months. This is a disaster for the Australian government’s fiscal strategy outlined earlier in May, which was planning to accelerate the austerity. The fiscal stands is currently based on deeply flawed forecasts of private spending and if the investment plans signalled in this data release are realised then the economy will continue to move towards recession over the next 12 months. In light of the latest investment expectations revealed in today’s ABS data release, the Government should abandon their fiscal strategy immediately and announce a significant stimulus package. Unemployment is already at elevated levels and will rise further under the current trends. This is another case of neo-liberal austerity white-anting the capacity of the economy to deliver prosperity for all.
\n<\/p>\n

In the Federal Fiscal Statement (aka ‘The Budget’) which the Treasurer introduced to Parliament earlier in May, the Government was basing its austerity package on assumptions that Non-Mining Investment would grow by 2 per cent in 2014-15, 4 per cent in 2015-16, 7.5 per cent in 2016-17.<\/p>\n

The – Statement 2: Economic Outlook<\/a> asserted that:<\/p>\n

\nReal GDP is expected to grow by 2\u00be per cent in 2015\u201116. This is one quarter of a percentage point slower than expected 12 months ago in the 2014\u201115 Budget, as a sustained recovery in non\u2011mining business investment is taking longer than expected. However, stronger non\u2011mining business investment is expected to drive an increase in growth to 3\u00bc per cent in 2016\u201117.\n<\/p><\/blockquote>\n

So all the fiscal estimates (size of deficit, outstanding public debt etc) and the economic outcomes forecast (Real GDP growth, unemployment etc) are based, in part, on the recovery in non-mining business investment as indicated.<\/p>\n

Commentators (including myself) were skeptical as soon as the Government released the forecasts. There was no way that the economy was going to achieve the sort of performance that the Government was claiming and the only question was whether the fiscal austerity that was being signalled would drive the economy into recession.<\/p>\n

The June-quarter National Accounts data, which I analysed in this blog – Australia national accounts – heading for recession at this rate<\/a> – told us the growth in the year to June 2015 had fallen to 2 per cent and that Real net national disposable income fell by a further 0.9 per cent over the quarter and 1.1 per cent over the year.<\/p>\n

On an annualised basis, growth was heading to around 0.8 per cent per annum if the June-quarter trend continued, which would blow the Government’s estimates out of the water.<\/p>\n

Today’s results confirm that the September-quarter GDP figures are likely to be worse than last quarter’s results.<\/p>\n

The reality is starting to look like recession if the Government does not rather radically alter its fiscal settings (from austerity to stimulus).<\/p>\n

The following graph, not part of today’s ABS release, shows the – RBA Commodity Prices Index<\/a> – which is a monthly index (2013\/14 = 100) compiled by the central bank to track the prices our export sector experiences.<\/p>\n

The graph shows Base Metals (blue line) and All Commodities (red line) for the period from July 1982 to October 2015. It tells you a lot about recent economic history in Australia, and experience that other commodity exporting nations such as Canada can also relate to.<\/p>\n

Commodity prices, especially for base metals accelerated in 2004 as Chinese economic growth stepped up several notches. The GFC saw an end to the peak, but once China resumed its higher growth rates as it re-balanced away from exports there was a small recovery which ended in early 2011.<\/p>\n

While commodity prices are still well above the historical averages prior to the boom, the fall since the peak in 2007 has significantly cut mining incomes in Australia.<\/p>\n

As a consequence, mining investment has virtually come to a halt.<\/p>\n

\"Australia_commodity_prices_1982_October_2015\"<\/a><\/p>\n

<\/div>\n

The ABS Private Investment data suggests that the 2015-16 fiscal estimates will not be even remotely achieved, given the expected spending plans signalled by private firms.<\/p>\n

The ABS data shows that for the September-quarter 2015 (real and seasonally-adjusted):<\/p>\n