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Investment fall spells trouble

Treasurer Joe Hockey admitted the figures were disappointing.

Business spending is collapsing to "recessionary" levels as worries grow the Reserve Bank may have to deliver another interest rate cut to prop up a deteriorating economy.

Australian Bureau of Statistics figures show the mining sector is central to an investment strike that is only partly offset by a home-building burst.

Analysis: It's an investment wasteland

The statistics show new capital spending fell 4.4 per cent in the first three months of the year - double what was expected.

More worryingly, estimates by firms on their spending intentions were also trimmed.

The mining sector, which two years ago invested more than $94 billion in new plant and equipment, expects to spend just $52 billion next financial year.

Beyond that, investment is tipped to fall even further.

In WA, mining investment remains reasonably strong but manufacturers spent an 11-year low of just $230 million on upgrading their operations in the March quarter.

Nationally, total investment covering all industries is tipped to fall from about $150 billion to just $102 billion.

Treasurer Joe Hockey admitted the figures were disappointing but said they had not taken into account last month's interest rate cut or Budget initiatives such as the $20,000 instant asset write-off for small businesses.

But UBS economists Scott Haslem and George Tharenou said capital expenditure was falling off a cliff in a direct risk to the entire Australian economy.

"The capex outlook deteriorated from already bleak three months ago to now recessionary," they said.

"This data is so bad it would worry the Reserve Bank and now raises the risk they will cut rates again."

The figures suggest the Budget's key economic forecasts are at risk as well as the Reserve's expectations for the country.

ANZ economists Daniel Gradwell and Felicity Emmett said the previous business survey was down during Prime Minister Tony Abbott's leadership woes. This latest survey was in a more stable period, but firms were still unwilling to sink money into capital projects.