* Australian Q1 business investment drop disappoints
* Data backs c.bank view that Australia is in recession
* C.bank deputy says global easing can be easily reversed
By Anirban Nag
SYDNEY, May 28 (Reuters) - Australian business investment fell faster than expected last quarter with companies slashing spending plans in the face of the economic crisis, adding to the view that the country is in its first recession since 1991.
The slump in business expenditure was driven by the largest quarterly fall in plant and equipment spending since the survey began in 1987. This will feed into first-quarter gross domestic product due out next week, which is likely to show a drop in the value of all goods and services produced.
The government reported capital spending fell 8.9 percent in the first three moths of 2009 to an inflation-adjusted A$22.96 billion ($18 billion) and reversed the previous quarter's surprise 7.3 percent rise.
Analysts had expected a fall of 7.0 percent, reflecting a collapse in business confidence, the commodity price slump and a sharp deterioration in global growth prospects.
"This is more confirmation that this is a business-led recession and we are deep in it right now," said Robert Henderson, chief economist, markets at National Australia Bank.
Australia's economy shrank half a percent in the fourth quarter of 2008 and the Reserve Bank of Australia believes it fell again in the first quarter. First-quarter GDP is due next Wednesday and the report may show the country is in recession as per the usual definition of two quarters of contraction in a row.
Financial markets expect the RBA to keep rates unchanged at a record low of 3 percent next Tuesday. The central bank has said it will wait to assess the impact of monetary and fiscal stimulus in the pipeline.
"We expect the RBA to deliver a steady rate decision at next Tuesday's board meeting despite the likelihood of a negative GDP print the next day," said Su-Lin Ong, senior economist at RBC Capital.
FUTURE PLANS CUT
Business investment accounts for only 10 percent of Australia's A$1 trillion economy but is susceptible to wild swings with a big impact on growth.
The 10.8 percent fall in spending on plant and machinery handily beat forecasts of a 7.0 percent drop and implied investment dragged on growth. Many analysts expect the economy to shrink by 0.1-0.2 percent quarter-on-quarter but Thursday's data will make them more pessimistic.
"It's so clearly a weak number," said Stephen Roberts, economist at Nomura. "It implies a substantial negative contribution to first-quarter GDP. I expect GDP to be -0.6 percent for the first quarter."
Business spending plans for the whole of the fiscal year to the end of June were also being curtailed given that Australia's big trading partners are still mired in a slowdown.
Estimated spending was cut by half a percent to A$99.25 billion for 2008/09, and plans for 2009/10 implied a drop of more than 4 percent in spending.
"In other words, firms are having second thoughts about extending the long investment boom -- global demand for Australia's exports has collapsed, and firms are finding it much more difficult to raise the necessary finance," said Stephen Walters, chief economist at JPMorgan.
Nevertheless, spending plans for mining remained relatively upbeat, falling at a much slower rate than other industries such as manufacturing. This implies that businesses are betting on a recovery in their main export market, China.
Exports data from Japan released on Wednesday suggested that shipments to China were declining at a slower pace while there were signs of a turnaround in the United States and Europe.
Earlier in the day, RBA Deputy Governor Ric Battellino said global central banks could easily reverse some of the large monetary stimulus launched this year and last if the threat of inflation came back.
The RBA has refrained from adopting so-called unconventional methods, such as buying government debt, it has slashed its key cash rate by 4.25 percentage points since September. ($1=1.272 Australian dollar) (Editing by Jan Dahinten)