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UPDATE 1-Australia business investment up in Q2, slowdown ahead
August 29, 2013 / 3:02 AM / 4 years ago

UPDATE 1-Australia business investment up in Q2, slowdown ahead

* Investment rises 4 pct in Q2 thanks to mining, beats
    * Latest estimate for 2013/14 spending nudged up to A$159.2
    * Onus still on non-mining sectors to take up the slack

    By Wayne Cole
    SYDNEY, Aug 29 (Reuters) - Australian business investment
was surprisingly strong last quarter as spending by miners more
than offset a slump in manufacturing, though plans for the year
ahead suggested investment was set to slow from here.
    Thursday's data from the Australian Bureau of Statistics
showed capital spending climbed 4 percent in the second quarter
to an inflation-adjusted A$40 billion ($35.8 billion), topping
forecasts of a 1 percent increase.
    Mining again led the way with a 6.4 percent jump in
spending, the best result in a year and a reminder the resource 
boom was not quite dead yet. Still, the best of the bonanza did
look to have passed.
    "We still think resource investment is going to peak in the
second half of 2013 and from thereafter it will be a drag on
overall economic growth," said Tom Kennedy, an economist at
JPMorgan. "So we still do need some sectors of the economy to
step up and fill that void."
    So far, however, the response has been disappointing with
some firms blaming political uncertainty ahead of a Federal
election on Sept. 7 for a reluctance to invest.
    The Reserve Bank of Australia (RBA) has done what it can to
try and revive businesses' animal spirits by cutting interest
rates to a record low of 2.5 percent earlier this month. If
non-mining investment does not start to pick up soon, it could
well have to ease again.
    The central bank's next policy meeting is on Sept. 3 but a
move is considered highly unlikely so close to the election.
Futures markets <0#YIB:> imply around a 56 percent chance of a
cut in November, rising to 80 percent by Christmas.
    One soft spot in Thursday's numbers was a 1.6 percent drop
in spending on plant and machinery in the second quarter, which
could have dragged on economic growth. 
    Gross domestic product (GDP) are due next week and a poor
number would be a blow to Prime Minister Kevin Rudd just days
before he faces voters on Sept. 7. Opinion polls already suggest
the Labor government will be handily beaten by the Liberal
National coalition.
    Looking further ahead, firms nudged up their spending plans
for the financial year to end June 2014 to a total A$159.2
billion, from a previous A$155.7 billion. 
    Deloitte Access Economics estimates there were a still
massive A$452 billion ($405 billion) of investment projects
underway or committed at the end of March. But another A$477
billion-worth were up in the air, with mining vulnerable to a
slowdown in China and softer commodity prices.
     Analysts have taken some heart in recent signs of
stabilization in China, easily Australia's largest export
market. Prices for some key resources have also swung higher.
    Iron ore is Australia's single biggest export earner and
spot prices have climbed 25 percent in the past three months to
$138.70 a tonne. The gain is even bigger for local miners since
the Australian dollar has fallen in the same period. 
    Measured in the local currency, iron ore prices have surged
34 percent since early June to A$154 a tonne, a major windfall
for profits, dividends and tax receipts.

 (Editing by Eric Meijer)

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