Treasurer Josh Frydenberg says the coronavirus has hit the global economy like an “earthquake”, and warned Australia is not immune from the shock.
Australia is set to announce its biggest contraction on record as a key plank of economic activity slumped in the June quarter as the coronavirus took its toll.
New figures showed business investment tumbled during the final three months of the 2019/20 financial year and the outlook was equally glum.
“Businesses are unwilling to undertake major investments while the outlook is so uncertain,” BIS Oxford Economics chief economist Sarah Hunter said.
Australian Bureau of Statistics data on Thursday showed new private capital expenditure tumbled 5.9 per cent in the June quarter to $26.1 billion, to be 11.5 per cent down on the year.
Looking ahead to 2020/21, the latest estimate for business investment is $98.6 billion, 12.6 per cent lower than the equivalent estimate this time last year.
“It’s difficult to see a significant turnaround in business investment until there is some decent rebound in consumer demand,” AMP Capital senior economist Diana Mousina said.
Separate ABS data also showed more than a third of businesses expect to find it difficult to meet their financial commitments over the next three months.
The Reserve Bank has warned a lack of business investment will be a significant drag on Australia’s economic recovery from the first recession in nearly three decades.
Dr Hunter said it reinforces the need for monetary policy settings to remain very accommodating and the federal government to provide further support.
Shadow treasurer Jim Chalmers said capital expenditure is in freefall in the absence of a comprehensive plan from the Morrison government.
“The less done to protect and create jobs, support vulnerable workers, businesses and communities, and boost business investment, the longer the downturn and the harder the recovery will be,” Dr Chalmers said.
The investment decline was led by a 7.6 per cent slump in equipment, plant and machinery expenditure to $12.1 billion, to stand 13.8 per cent down on the year.
It was the largest quarterly fall since 2013.
Investment in buildings and structures fell 4.4 per cent to $14 billion, a fall of 9.4 per cent from a year earlier.
The data feeds into next Wednesday’s national accounts for the June quarter.
At this stage, and ahead of further quarterly figures early next week, economists’ forecasts centre on a contraction of about six per cent for the June quarter.
The Organisation for Economic Cooperation and Development said output for the whole OECD area dropped by an unprecedented 9.8 per cent in the June quarter.
This was much larger than the 2.3 per cent contraction recorded in the March quarter 2009 and at the height of the global financial crisis.
“COVID-19 has hit the global economy like an earthquake … and Australia has not been immune,” Mr Frydenberg told parliament.
Prime Minister Scott Morrison did not believe business confidence was being further affected by the trade stoush between Australia and China.
“Australia has always been, under our government, very clear and very consistent about where we stand on important issues regarding our interests and our sovereignty, as have China,” the prime minister told reporters in Canberra.
“That clarity creates certainty.”