Australia's Push To Rebalance The Economy Is Not Going Well

As the resource supplier to the booming emerging markets, Australia enjoyed many years of economic prosperity.

But as China's economy slowed, concerns about Australia's health mounted. Dylan Grice summed up the concerns when he wrote that Australia is "a credit bubble built on a commodity market built on an even bigger Chinese credit bubble."

Policymakers have been trying to balance the economy away from one led by resource exports to one led more by consumption.

While industries supporting those resource exports continue to contract as expected, the industries supporting consumption are not improving as hoped for.

According to the latest Australian Bureau of Statistics report, capital expenditures in the country fell 5.2% quarter-over-quarter in Q4. Manufacturing was in the worst shape followed by mining.

What's more, fiscal year 2014-2015 (i.e. mid 2014-mid 2015) capital expenditure plans also look "awfully weak," writes Societe Generale's Klaus Baader. Fiscal year 2014-15 plans came in "17.4% below the first estimate for 2013/14, which was itself down by 8.8% from the peak in the prior year."

Not only are we seeing a slowdown in mining, we're also seeing a slowdown in non-mining investment as well.

While Baader urges caution in interpreting this data because of "the length of the forecasting horizon" and because "the previous year's spending is only half-way done, so the basis is still moving." He does point out that this isn't great for Australia's GDP prospects in the second half of 2014 and going into 2015.

SocGen's Kit Juckes writes that this is just evidence that "Australia's painful rebalancing isn't over."