You’ve probably heard of the “capex cliff”, the term for the collapse in capital expenditure plans by Australian businesses that is an inevitable feature of the economy following the once-in-a-lifetime mining investment boom driven mainly by the surge in Chinese demand over the past two decades.

But with Australia’s manufacturing industry having been hollowed out too over the past decade, the capital investment pipeline for both mining and manufacturing are gone. So the fall-off, when measured in terms of a percentage of GDP, is nothing short of spectacular in historical context, as shown in this chart from Macquarie:

Chart: Macquarie Research

It’s not hard to see why economists have occasionally mentioned the word “recessionary” in reference to the investment outlook.

Part of what’s driving this is that Australia’s economy is increasingly being driven by much less capital-intensive sectors such as education and tourism, which don’t require huge pieces of machinery and infrastructure like trains, tunnelling machines and factory plant equipment.

And on the other side of the ledger, the huge increases in capital investment during the mining boom have laid the foundations for the vast increase in Australia’s commodity export volumes, which have been supporting economic growth since the spending started to fall away.

The Macquarie research team notes, however, that “non-mining business capex has yet to meaningfully react to lower interest rates, and that companies are “waiting for clear signs of sustained demand before investing.”

Right now, those signs are nowhere to be seen.

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