(Adds analyst, market reaction)
* Capital expenditure -0.3 pct in Q4, but Q3 revised up to +14.6
* Spending plans for 2011/12 and 2012/13 very strong on mining
* Investment bonanza supports RBA case for steady interest rates
By Wayne Cole
SYDNEY, March 1 (Reuters) - Australian business investment dipped slightly last quarter from record highs as firms eased back on buying equipment, but stratospheric spending plans showed the country’s mining boom was set to fuel economic growth for years to come.
There was also promising news from Australia’s major trading partner China, with data showing manufacturing activity and export orders on the rise in February.
The data lifted the Australian dollar to $1.0755 and helped explain why the Reserve Bank of Australia (RBA) remains doggedly upbeat on the economic outlook despite softness in some sectors like manufacturing and retail.
“The data on spending plans for this year and next year are pointing to ongoing very strong growth, and this is a very solid underpinning of the Australian economic story,” said Michael Blythe, chief economist at Commonwealth Bank.
“It’s one of the reasons why the RBA has taken the return to stability in Europe and on financial markets to sit on the sidelines,” he added. “That’s where I think they’ll be quite happy to stay.”
The RBA has repeatedly stated that rates of 4.25 percent are appropriate for the moment given the outlook for trend economic growth and contained inflation.
Interbank futures <0#YIB:> imply less than a one-in-five chance of a cut in rates in March, and are not fully priced for a move to 4.0 percent until June.
That is a marked contrast with the aggressive easing being pursued in many other rich nations.
The European Central Bank on Wednesday pumped another 530 billion euros into the European banking system, bringing the total lent in the last few months near to Australia’s entire annual GDP of A$1.3 trillion ($1.4 trillion).
Thursday’s data from the government showed just why the RBA is so upbeat on the outlook. Planned business investment for 2011/12 was revised up to A$164 billion, while a very early estimate for 2012/13 was an even higher A$172 billion.
Going by history, the latter estimate could well see actual spending top A$200 billion, a staggering 15 percent of GDP, as investment estimates are usually revised higher.
Overall, business investment for the fourth quarter slipped 0.3 percent to an inflation adjusted A$37.9 billion. However, spending in the previous quarter was revised up to show a record increase of 14.6 percent from an already high 12.3 percent.
Spending in the fourth quarter was up 30 percent on the same period in 2010, with mining investment up no less than 78 percent. Miners and energy groups are ramping up output to meet future demand from the industrialisation and urbanisation of billions of people in China and India.
Still, investment in massive resource projects tends to be lumpy which can lead to big swings quarter to quarter. As a result spending on plant and machinery slipped 2.1 percent in the fourth quarter, suggesting some downside risk to gross domestic product (GDP) growth in that quarter.
“It means economic growth in Q4 could be subdued,” said Brian Redican, a senior economist at Macquarie. “But that should only be a temporary hiccup.”
“Crucially, the forward estimates for spending clearly maintain this rapid momentum, which will make the Reserve Bank very happy. That is just what they want to see and makes it unlikely they will ease anytime soon.”
Projects planned or underway amount to nearly A$500 billion, with A$180 billion alone in the liquefied natural gas sector.
Mining investment is already up around 5 to 6 percent of GDP, from a long-run average of just 1.75 percent, and the RBA expects it to rise another percentage point or two in the next couple of years.
This splurge has helped more than offset weakness in home building, which is struggling with affordability and red tape. Figures from the government on Thursday showed approvals to build new homes rising a modest 0.9 percent in January. ($1 = 0.9255 Australian dollars) (Reporting by Wayne Cole; Editing by Michael Perry)