Weak capital expenditure data to snip GDP but firms upbeat on future investment

Soft investment data is set to drag on growth amid signs more funding is in the pipeline.

Construction at the Osborne Shipyards in South Australia. Picture: Brad Fleet

Business investment in Australia was weaker than expected in the second quarter, further hobbling an economy that is already growing at its slowest pace in a decade.

Investment contracted by 0.5 per cent in the quarter, confounding economists who had expected a 0.4 per cent increase. Firms were upbeat about their investment plans through the year to June, 2020, forecasting a 10.7 per cent on-year rise.

The Australian dollar dipped on the weaker-than-expected capex data, losing 10 pips to a three-day low of US67.26 cents soon after the release, nearing the decade low of US66.77c it hit earlier this month.

The weak investment result emerges as a trade war between the US and China escalates, damping the global growth outlook and putting a cloud over the outlook for commodity prices.

Economists are likely to further downgrade their forecasts for GDP growth in the second quarter due to soft investment, with the growth report scheduled to be reported next week.

The soft investment data comes as business confidence and conditions have weakened this year, prompting the Reserve Bank of Australia to cut interest rates in June and July.

Treasurer Josh Frydenberg this week called on companies to ditch share buybacks in order to lift investment and productivity growth, which has stalled over recent years.

Soft business investment will worry the RBA, which has pegged some of its hope for a recovery in GDP growth to a bounce in business investment. The RBA has left open the prospect of cutting interest rates further if needed, but has also called for government purse strings be loosened to boost activity.

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