Weak Economic Data Rolls In As RBA Governor Warns On Virus “Shadow”

By Glenn Dyer | More Articles by Glenn Dyer

More evidence of the weakening outlook for the economy, despite the bullishness of stockmarket investors.

The latest data from the Australian Bureau of Statistics on private investment showed a 1% drop in the March quarter and an even sharper 8.8% slump in the second estimate for the coming 2020-21.

That was after ABS data for the value of construction work done fell by 1% in the March quarter, a little better than forecast, but probably as good as it will be for the next year or more with sharp falls in housing and construction looming.

As well the latest survey from the ABS on the impact of the COVID-19 pandemic and lockdowns showed that 70% of businesses had seen a downturn in revenue because of the impact of the virus, while the same percentage of businesses had been forced to change the way they operate – such as closing, shortening hours or laying off staff.

The ABS survey also found that almost three-quarters of businesses accessed support measures as a result of COVID-19. This included accessing wage subsidies (55%) and other government support measures (38%).

At the same time reserve Bank Governor, Philip Lowe added his view to the weak outlook, warning that the economy is not in good shape with more job losses very possible.

He told the COVID-19 Senate committee by video link that the federal government should not be cutting stimulus, but continuing programs such as the JobKeeper scheme and redirecting it in coming months to more needy sectors of the economy.

“Even as the recovery gets underway, there will still be a shadow cast by the pandemic,” he told the Committee and while he said it appeared the worst of the fall in employment was over, he warned that jobs were likely to still go.

Dr Lowe said his biggest concern were for those areas of the economy which went into the virus lockdown with a pipeline of work that had enabled them to continue operational. Those sectors, such as construction and professional services, were now at risk of losing jobs as other parts of the economy reopened.

The ABS data on private sector capex (and remembering that this survey does not capture all investment, especially from some areas like small business or from public education and health) showed a 1.6% fall in the March quarter thanks to a fall in private spending on equipment, plant and machinery.

While that was better than the 2.6% slide in the three months to December, it took the fall in the past year to more than 6%, a big slide by any measure, and there is worse to come.

Seasonally adjusted data released by the Australian Bureau of Statistics on Thursday showed total capital expenditure of $27.69 billion in the three months to March.

That was down 6.1% from the March, 2019 quarter and under the 2018 figure for the quarter of $29.83 billion.

While the fall was lower than market forecasts of 3%, private capital expenditure is still likely to be a drag on next week’s GDP data.
It followed a 2.6% decline in business investment during the December quarter.

Expenditure on buildings and structures fell 1.1% in the March quarter to $14.7 billion but spending on equipment, plant and machinery dropped further, down 2.3% to $13.27 billion.

The period covered included the effects from the summer bushfires but do not reflect much of the impact from the coronavirus related shutdowns, which started in late March, but seem to have influenced the outlook.

Businesses collectively expect to invest $115. 4 billion in 2019-20, which is 3.8% lower from three months ago and 5.6% lower from a year ago.
But investment plans for 2020-21 will see sharper falls.

Businesses plan invest just $90.89 billion for the year, down 8.8% from the first 2021 forecast three months ago and a fall of 7.9% from the second estimate last year.

The fall in expected investment is across the board – mining (down 6.8%), manufacturing (down 7%) and other selected industries (down 10.6%), with falls in buildings (down 11.6%) and structures and plant and machinery (a fall of 4.5%).

That is the gloomiest bit of data released yesterday and coupled with the already predicted sharp fall in construction and especially home and apartment building, the investment outlook has moved from weak to miserable.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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