More rate cuts loom as mining slack not taken up
The Reserve Bank is faced with taking interest rates below 2 per cent to offset a sharp fall in mining investment that is failing to be filled by other parts of the economy.
Capital expenditure figures from the Australian Bureau of Statistics show miners are planning to cut their spending on new projects by 20 per cent over the coming year.
The mining sector's spending plans for 2015-16, at $52 billion, would be the smallest in more than five years. The coming year's spend includes several major projects that are due to be completed in the next 12 to 18 months.
The Federal Government and the Reserve Bank have been hoping that the fall in mining would be offset by a lift in manufacturing and services sector investment.
The initial plans by companies in those areas suggest they will be well short of filling the mining investment hole.
Services investment is, at this early stage, on track to be 7 per cent lower than in the current year.
TD Securities economist Prashant Newnaha said markets were now expecting the Reserve Bank to cut official rates to 1.75 per cent from the current 2.25 per cent.
"The transition from mining to non-mining is virtually non-existent and will prove to be a major disappointment for the Reserve Bank as it has hinged on a recovery in the services sector to feed into other sectors of the economy," he said.
Taking official rates below 2 per cent would put immense pressure on people with money socked away in the nation's banks.
The poorer-than-expected capital spending figures, which new Treasury Department secretary John Fraser identified as important to the direction of the economy, followed weak wages data.
Figures released earlier this week showed wages growing at their slowest rate on record. In WA, wages rose 2.3 per cent through 2014. In the private sector, wages were up just 2 per cent, the lowest level in WA since the ABS started compiling figures in the 1990s.
JP Morgan economist Tom Kennedy said the Reserve Bank would probably not move rates at its meeting next month but wait until May.
