The resources boom has gone well and truly kaput as the main driver of the Australian economy for the past five years takes a huge hit from the recession and credit crunch.
A week ago ABARE revealed that more old projects were being cancelled than new resources projects were being approved, and yesterday the boom in construction work for much of last year was punctured.
Today new private capital spending crashed in the March quarter by almost 9%, much worse than the market expected and setting up a fall of around half a per cent in first quarter economic growth.
If that’s the outcome next Wednesday when the national accounts are released, it will be a mild recession and nowhere near the depth or the nastiness of the US, Japan, Europe or many of our other trading partners have felt.
And the outlook for the 2009-10 financial year is gloomy — a slump in spending plans before the new financial year has started. The fall of 3.5% will only worsen as the year goes on and more projects are not proceeded with.
Figures from the Australian Bureau of Statistics show that there was a fall of 8.9% in total new capital spending, compared with the market estimate of a smaller drop of 3.3%. A Bloomberg forecast had a fall of 6% pencilled in.
The outcome was almost spot on Goldman Sachs JBWere’s forecast for a fall of 9%, with a couple of other economists around the 9%-9.7% range.
The slump followed yesterday’s bigger than expected 3.7% fall in construction work done in the March quarter to $34,465.8 million in the March quarter. That followed a revised rise of 2.3% in the December quarter. Market forecasts were for a fall of 2.7%, so those economists who had been tempted to lift their estimates of the March quarter’s slide in output, will have to go back to their abacuses.
The ABS said the 8.9% fall in the seasonally adjusted estimate of total capital spending was driven by a 4.7% drop in the value of buildings and structures, and a much larger 10.8% plunge in the value of new equipment, plant and machinery.
That had been apparent from the fall in capital goods in the import figures since late last year. Mining and oil companies have cut production, closed mines and postponed new projects or expansions. The figures help explain the rise in unemployment in Queensland and Western Australia. Looking at expected spending over the next year, the impact of the downturn showed up here with the 6th estimate for 2008-09 spending now down half a per cent from estimate five in February.
Looking to 2009-10 the second estimate is down 11.7% from the second estimate for the 2008-09 year (which ends next month). But it is also down 3.5%, or $2.841 billion from the first estimate of $79.866 billion for the new financial year.
But offsetting this downturn will be the expected surge in residential building construction over the next year to 18 months triggered by the first home buyer’s grant and low interest rates. That prospect has some economists not so concerned about the impact of the slide in new capital spending by the private sector. Public sector spending will increase as work starts on the many local, state and federal infrastructure projects financed in the second stimulus package and reconfirmed in the recent 2010 Federal Budget.
Heavy spending is continuing in the LNG gas sector in Western Australia and is due to start happening next year in the Queensland coal seam gas sector which will expand more rapidly from 2010-2011 onwards.