Sources of the capital slowdown

The rate of growth in capital slowed between the slump (2003-04 to 2011-12) and the recent period (2011-12 to 2017-18). The rate slipped from 5.21% a year to just 2.85% a year.

This page examines the industry and asset sources of the slowdown in capital growth. 

Note that, due to some technical procedures undertaken by the ABS, the estimates presented here do not accord precisely with ABS estimates. Nevertheless, the differences are small and do not undermine the impressions and conclusions gathered.

Figure 1 shows the annual average growth rates of the main asset types during the slump and the recent period. Industry-specific assets such as farm inventories, mineral exploration, and artistic originals are not shown. The green bars in the figure show the extent of decelerations in asset growth. 

There was a slower rate of growth in all asset types, except computer software. The 15 percentage point decline in the growth rate of computers stands out. There were also declines of around 5 percentage points in electronic and electrical equipment and in R&D.

How significant were each of the asset types in the overall decline in capital growth? Figure 2 shows the contribution of the main asset types to the decline in the rate of market-sector growth in capital between the slump and the recent periods.

Computers still stand out, making a 0.7pp (or 30%) contribution of the 2.4 percentage point slowdown in the annual rate of capital growth. Industrial machinery (20%) and electrical & electronic equipment (15%) also made elevated contributions because of their relatively large size.

These assets are normally considered a foundation for innovation and productivity growth. Computers are a platform for product and process innovations developed by firms. New technologies are often embodied in machinery and equipment, allowing firms to produce more efficiently.

Investment in R&D is a further way in which firms learn ways to innovate and improve productivity. Although not one of the highest contributors, lower growth in R&D did contribute to lower overall capital growth.

It seems highly probable from this information on asset contributors that the MFP acceleration in the recent period is not associated with the usual pathways of innovation and efficiency-enhancing investment.

In which industries did the cutbacks in growth in these assets take place? Table 1 gives the information.

Large contributions to the fall in computers growth were widespread, with the largest contributions from finance, rental and professional services. Mining and manufacturing together accounted for two-thirds of the fall in growth in R&D capital. Mining alone accounted for more than 40% of the decline in growth of Industrial machinery & equipment.

Manufacturing and construction featured heavily in at least three of the asset slowdowns.