Investment set to slump amid mining decline, but some industries are looking up

Australia could be facing its biggest investment slump years, with new figures released from the Australian Bureau of Statistics data released yesterday.

The quarterly survey of business investment intentions shows spending is projected to drop 17.4% from $167 billion to $125 billion by the end of June 2015.

According to the report, the main reason for such a sharp decline is the mining industry. In the 2014-15 financial year, investment in mining is expected to drop by 25.2%. In other words, from $102 billion to $74 billion in the space of 12 months.

Meanwhile, manufacturers are expected to invest almost 20% less than expected, dropping from $8.9 million to $6.3 million in the ABS estimates.

AMP Capital chief economist Shane Oliver says the figures are worse than expected.

“The investment intentions for next financial year are pretty terrible,” he told SmartCompany.

“It is a poor outlook for investment and one of the biggest slumps in a long, long time. The mining boom is coming to an end and now investment is sliding down to where it used to be five or six years ago.”

JP Morgan economist Tom Kennedy agrees.

“Yesterday’s numbers were pretty disappointing in general,” he says. “The more important thing is the forward intentions were pretty weak also and largely located in the resource sector. Worryingly there was no sign of lift in the manufacturing or select industry groups.”

However, Oliver says there is “a light at the end of the tunnel” thanks to industries outside mining and manufacturing.

While investment in industries outside the resource sector is expected to drop from $55.7 million to $44.4 million, the latter figure is 0.4% higher than the first estimate for the 2013-2014 period.

“It is not all doom and gloom out there,” says Oliver. “The investment side was always a big worry, but if you look at the broader economy, people are buying homes again and there could be an upwards swing in housing construction.”

Oliver says the retail sector did better than expected late last year and investment in general could pick up outside of the mining sector later this year.

“Even though we’re getting all these negative comments regarding employment there are some positive signs outside these key areas of manufacturing and mining.”