Public sector investment continues to crowd out the private sector
Government spending rose by just 0.1 per cent in the quarter, after a 0.6 per cent rise the previous quarter. Spending was driven by the Federal Government, up 0.7 per cent in quarter, focused on non-defence spending. State and local government spending fell 0.4 per cent in the quarter.
Public investment surged 3 per cent in the March quarter, after falling 0.7 per cent in the previous quarter – mainly driven by state and local government investment in transport infrastructure and health.
Both government consumption and investment as a percentage of GDP remain elevated, exacerbating skill shortages and capacity constraints within the economy In the May Budget, the Federal Government indicated that they were planning to spend more than they saved in the short term, given the surge from additional tax collections. However, the review of the $120 billion infrastructure pipeline to ensure value for taxpayer funds is an important step in easing some of these capacity constraints.
Business investment a stand out despite economic challenges
Private sector investment rose 1.4 per cent in the March quarter after falling in the previous quarter. Business investment saw a strong rise of 3.4 per cent as the manufacturing, transport and mining industries purchased machinery and equipment (up 6 per cent). Non-dwelling construction also rose which is a welcome sign of improved materials supply.
Despite the current economic challenges, private sector investment intentions remain robust. This was reflected in capex intentions for this financial year being upgraded by 2.7 per cent, and capex plans for the next financial year being upgraded by over 6 per cent, but a little lower than usual at this time of year.
Interest rates and capacity constraints put pressure on dwelling investment
Total dwellings investment fell 1.2 per cent through the quarter as rising interest rates and capacity constraints weigh on activity.
Investment in alterations and additions fell 0.9 per cent which is the sixth consecutive quarterly fall, from record highs in 2021. Housing investment fell 2 per cent over the quarter, largely driven by a 5 per cent fall in ownership transfer costs.
Labour and material shortages continue to impede on the construction of new dwellings, resulting in a 1.3 per cent fall over the quarter. These pressures are making it difficult for builders to address the significant backlog of work, as project delays and completion times remain high.
Net exports detract from growth as import and export prices fall
Net exports detracted 0.2 percentage points from growth as the rise in imports outpaced the rise in exports.
Exports increased by 1.8 per cent, largely driven by travel services (education and tourism) and rural goods. Imports rose 3.2 per cent mainly driven by motor vehicles, mobile phones, and machinery and equipment. Australians travelling abroad contributed to the rise in service imports.