The glacial pace of growth in non-mining business investment won't boost the economy and increases the chance of an interest rate cut in 2017, economists warn.
Investment in capital goods, including buildings, structures, machinery and equipment, fell 2.1 per cent to $27.6 billion in the December quarter.
Excluding out a 9.3 per cent slump in mining investment, non-mining investment including manufacturing and services rose 1.9 per cent in the quarter.
According to the Australian Bureau of Statistics, overall investment is expected to fall 3.9 per cent to $80.6 billion in 2017/18, the lowest level in a decade.
But services sector investment is expected to jump 8.3 per cent to $46.8 billion next financial year.
Capital Economics chief economist Paul Dales said the investment plans were disappointing given they were formed when rising commodity prices were set to bring in more money.
"Of course, if commodity prices remain high, then businesses may yet become more upbeat. But even in that scenario, we suspect they will pocket the money rather than boost capex," he said.
"Without a strong rebound in non-mining business investment, Australia will continue to grow slower than its potential rate of 2.8 per cent for a few years yet."
Commonwealth Bank economist Gareth Aird said non-mining investment may not prove as soft as the ABS survey implies, as it excludes many large sectors including agriculture, construction, health and education.
Royal Bank of Canada analyst Michael Turner said the tepid outlook for non-mining investment increased the risk of a rate cut, even though mining investment had fallen almost 60 per cent from its peak in mid-2012.
The Reserve Bank of Australia has long been expecting an eventual jump in non-mining investment to boost economic growth.
"Coupled with persistently weak wages growth and sub-target inflation, we continue to see the risks as skewed toward one final cut from the RBA in the second quarter," Mr Turner said.
