Businesses are unable or unwilling to step up their investments to make up for dwindling spending in the mining sector.
Business investment in capital goods, which includes buildings and equipment, fell 5.2 per cent in the March quarter - much worse than forecasts of a 3.5 per cent fall.
Businesses expect to invest $126.8 billion by the end of the 2015/16 financial year, 15 per cent less than their estimate in the previous year, the Australian Bureau of Statistics said.
As expected, mining investment led the drop in spending, falling 12 per cent in the March quarter.
RBC analyst Michael Turner said non-mining investment was also nearly flat over the quarter.
That is not surprising but it is disappointing, especially as mining investment is likely to fall a lot further.
"The remainder of the economy still looks unwilling or unable to fill the mining void," Mr Turner told AAP.
JP Morgan economist Tom Kennedy said investment plans for 2017 had marginally improved since the last estimate, but they still imply a hefty fall of 22 per cent year-on-year.
"The silver lining, however, is we are now more than halfway down the capex cliff, and the trajectory from here should be no steeper than what we have been accustomed to in recent years," he said
Commonwealth Bank director of economics John Peters said a small 0.7 per cent rise in non-mining investment in the year to March provided a small highlight.
He also noted non-mining companies, which are mainly services providers, tend to require less investment than mining and manufacturing firms.
"This implies a lower investment level economy-wide," Mr Peters said.
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