South-east Australia’s non-mining business investment seems likely to recover given the worst of the income shock from falling commodity prices looks to be over, while mining capex is likely to be almost back at pre-boom levels by then.

Non-mining business investment has been unusually weak since the global financial crisis, falling to a recession-like low of 9.8 percent of GDP in 2016. For policy-makers and financial markets alike, one of the disappointing features of the recovery outside the mining sector has been the weakness in non-mining business investment.

On a GDP basis, real non-mining capital expenditure fell sharply during the global financial crisis, down 12 percent from the peak in 2008 to the trough in 2010, before rebounding by 17 percent over the course of 2010 and 2011.

However, that recovery quickly stalled and has been largely unwound, with investment drifting lower over recent years. This has seen investment fall to its lowest level since 2010, broadly matching the level seen before the global financial crisis took hold in 2007. With non-mining investment drifting lower over recent years, new nominal capex has fallen from 13.2 percent of GDP prior to the global financial crisis to 9.8 percent of GDP in 2016.

According to a survey conducted by ANZ, non-mining business investment is actually recovering quite strongly in the south-east of Australia, led by New South Wales, where nominal spending is up 10 percent over the past year. Victorian investment is up 3 percent over the same period, while Tasmanian capex is 6 percent higher. This contrasts with South Australia, where investment is down 5 percent, Queensland, where investment is 13 percent lower, and Western Australia, where spending has fallen 15 percent.

“We expect that the strength in non-mining investment in the non-mining states should drive a recovery in national business investment by the end of 2017,” ANZ commented in its latest research report.