"The rotation away from mining investment that seemed to be progressing over the past year is no longer advancing," said JP Morgan economist Stephen Walters. "Firms outside resources actually have downgraded their spending intentions after adjustment for the usual estimation errors. They are in no position to offset the even steeper fall by mining firms." UBS economist George Tharenou told clients the outlook had switched "from bleak to recessionary". "The capital expenditure cliff has arrived early," he said. "This data is so bad it would worry the Reserve Bank and raises the risk they will cut rates again ahead." In Parliament, Treasurer Joe Hockey said the data was "disappointing" but the $20,000 instant asset write-off in the budget would make a difference for small businesses. Victoria was partly to blame for its "calamitous" decision to knock back an offer of Commonwealth money for the East West Link, a project that "would have involved probably around $12 billion of private-sector capital expenditure". Queensland had turned its back on an offer of Commonwealth money for asset recycling.

Federal Labor spokesman Chris Bowen said the Treasurer had no one to blame but himself. "Private capital expenditure is now down 11 per cent since the last election and the result is the worst since the global financial crisis," he said. "Before the election, the Prime Minister promised 'an instantaneous adrenalin charge'. The Treasurer has been speaking about real momentum. "The fact is that the Abbott government has presided over an underperforming economy, with growth downgraded and unemployment forecast to go higher in the recent budget." The budget forecast economic growth of 2.75 per cent in the year ahead and 3.25 per cent in 2016-17. Mr Tharenou said his already-low forecasts of 2.2 per cent and 2.8 per cent now looked difficult to achieve.

The $54 billion Gorgon natural gas project off northwest Australia is expected to wind up this year, as is Gina Rinehart's $10 billion Roy Hill iron ore project. The $30 billion Wheatstone gas project in Western Australia is 60 per cent complete and the Curtis Island project near Gladstone in Queensland finishes next year. "We had expected to see glimmers of hope for an economy struggling to adjust to sliding mining investment," said Mr Walters. "Instead, this news all but snuffs out the candle that has been burning at the end of the tunnel. Firms actually downgraded their spending intentions for the next financial year, as well as having slashed spending by twice as much as expected in the most recent quarter." The bureau said actual capital spending fell 4.4 per cent in the first quarter of the year. Mr Hockey told Parliament the reaction to his budget had been "fantastic". "Small businesses have greater opportunities than ever before to access the global market and we're opening up new trade agreements with China, Korea and Japan and opening new agreements potentially with India, even as we speak. We've removed 50,000 pages of regulation, we're opening the doors to a fairer employee share scheme arrangement."

The Australian dollar slid to its lowest point since mid April on the news, slipping almost a cent to US76.75 cents. The futures market lifted the implied probability of a further rate cut this year from about 50 per cent to about 75 per cent. Follow us on Twitter