Investment in Australian manufacturing has slumped below 1 per cent of GDP for the first time in 60 years of statistics, as the high dollar and the rise of China slowly suffocate confidence in the sector.
The Bureau of Statistics reports that capital expenditure by manufacturers slumped 13.5 per cent in the September quarter, spearheading a 4 per cent fall in total business investment.
Mining investment rebounded 2 per cent after two successive falls. Investment in service industries fell 6 per cent after setting a record high in June.
Business investment plans for the 2009-10 financial year are down 8 per cent from plans at this time last year, and 7 per cent from the amount actually invested. If the average ratios of plans to realisation apply, mining and services investment would roughly match last year's levels, but manufacturing investment would slump 8 per cent.
Treasurer Wayne Swan told Parliament the economy was expected to operate below capacity for some time, and unemployment would get worse before it got better. ''I think it underscores the importance of the economic stimulus,'' he said.
But the problems facing manufacturers are more deep-seated. The bureau has been measuring their capital expenditure since the national accounts began in 1949. As a share of GDP, it has fallen to just a fraction of what it was in the 1950s and 1960s, and even the 1980s and 1990s.
Over the 24 years before the Whitlam government's tariff cuts, on average 3.2 per cent of Australia's GDP comprised investment in new factories and machinery. But that has been falling ever since, to 2.3 per cent in the 1980s, 1.8 per cent in the 1990s, and 1.2 per cent so far this decade.
In the September quarter, it slumped to just 0.9 per cent of GDP. Manufacturers' investment plans reported to the bureau imply a similar level for the whole financial year. The slump came despite a temporary tax break for new investment by small and medium firms.
By contrast, mining investment has risen from an average of 0.27 per cent of GDP in the 1950s to 3.16 per cent in 2008-09, as Australian resources provide the raw materials for China's manufacturing juggernaut.
Australian Industry Group chief executive officer Heather Ridout said the poor investment figures were in line with those from the group's surveys, and reflected the steep slump in profits.
''In the past year, manufacturers have been hoarding labour while their value-added output has fallen,'' she said. ''Their profits have fallen substantially, and they don't have cash available to invest.''
AiG surveys also show that one in four manufacturers planning to invest have difficulty getting finance.
Ms Ridout said the long-term answers had to come from lifting skills, innovation and business capabilities to create a future for Australia at the high end of manufacturing.