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Australia’s contraction in capital expenditure continued to moderate in the December quarter, but still fell by more than economists had forecast.

That may prompt a little bit of nervousness ahead of next week’s GDP data, that, if negative, would mean Australia fell into a technical recession in the second half of 2016, the first recession in a quarter of a century. The economy contracted 0.5 per cent quarter on quarter in the three months ended September 30.

Private capex fell by 2.1 per cent year-on-year in the three months to December 31, from a revised 3.3 per cent contraction (previously -4 per cent) in the September quarter, according to the Australian Bureau of Statistics. However, this was worse than the 0.5 per cent drop economists had expected, according to a Bloomberg survey. It was still the best quarterly result since the final three months of 2015.

By asset type, expenditure on buildings and structures fell 4.7 per cent in the December quarter, while spending on plant and machinery shrank 0.4 per cent.

The ABS released its first estimate for capital spending in 2017-18, which came in at A$80.6bn ($61.91bn). This was less than the average of A$84.4bn forecast by economists., and was weighed down by a sharp drop in spending by the mining industry.

The fifth estimate for spending in 2016-17 came in at A$112.16bn ($86.12bn), which was 9 per cent lower than a year ago, but 4.6 per cent higher than the fourth estimate that accompanied the September quarter data.

The Australian dollar bore the brunt of the data, dropping 0.4 per cent to $0.7671 in its biggest one-day drop in a fortnight.

Ahead of today’s release, economists at Westpac noted:

Estimate 1 has been very weak for the past four years, relative to Est 1 the year earlier, at -9%, -17%, -18% and -18%. For 2017/18, expect another negative, but a smaller rate of
decline as the mining drag wanes. Prospects for investment ex mining remains uncertain. Potentially we could see an Est 1 in the order of $80bn, which is 5% below Est 1 a year ago, with weakness centred on mining.

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