Economists are growing more certain with every new data release that next Wednesday’s national accounts will confirm that the economy has been in recession since late last year.

But they say this won’t be an automatic trigger for another interest rate cut next week.

Data released on Thursday showed business investment dropped by its biggest margin in nearly 20 years during the first three months of 2009, while future spending plans have been cut back as the economic downturn takes holds.

The downturn in growth comes despite the federal government’s efforts to sure up the economy through household spending.

“This is a business-led recession and we are deep in it right now,” NAB Capital chief economist Rob Henderson said.

However, he did not expect the Reserve Bank of Australia (RBA) would cut the cash rate at next Tuesday’s board meeting, leaving the rate unchanged at a 49-year low of 3.0 per cent for a second month in a row.

“The RBA has cut rates aggressively and pre-emptively, so (it) will need a downside surprise to switch back into easing mode,” he said.

The central bank cut the cash rate by a massive 425 basis points between September last year and April, and has indicated it wants to monitor the impact of lower rates and the government’s stimulus packages before taking further action.

As it is, RBA Governor Glenn Stevens conceded in April that the economy was in recession following a contraction in the December quarter gross domestic product (GDP), without needing to see the March quarter national accounts.

A recession is defined by two consecutive quarters of negative growth.

RBA Deputy Governor Ric Battellino has also downplayed concerns that central banks world-wide might be too slow to alter policy to fight the risk of rising inflation in the future, having taken drastic measures to combat the global financial crisis in the past year.

“The high state of awareness that currently exists about the risk of being too slow to reverse recent exceptional measures should limit the possibility of such a mistake being made,” he told a Securities and Derivatives Industry Association conference in Sydney on Thursday.

New private capital expenditure (capex) tumbled by a seasonally adjusted 8.9 per cent in the March quarter to $22.96 billion, the Australian Bureau of Statistics said.

This included a 10.8 per cent slump in equipment, plant and machinery spending.

Economists’ forecasts had centred on a five per cent fall in total spending.

The report showed that businesses have also slashed investment spending plans, although not by as much as some economists feared given the economic climate.

The second estimate for the 2009/10 financial year is $76.93 billion, down 4.5 per cent from the first ABS survey estimate made in February.

In this month’s federal budget, the government forecast business investment to slump 18.5 per cent in 2009/10.

“At face value, the budget forecasts look too pessimistic,” Commonwealth Bank of Australia chief economist Michael Blythe said.

The fall in actual capex spending was the largest since at least 1987, and follows Wednesday’s drop in construction work in the March quarter.

“While not all of this will feed into next week’s GDP estimates, today’s data will reinforce expectations of a negative GDP print,” Mr Blythe said.

“Our summation of the available expenditure-side components suggests a small negative for … GDP growth.”

Economists will finalise their GDP forecasts after the release of company profits and business inventories data on Monday, and the balance of payments on Tuesday.

AAP