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Australia business investment skids, risks GDP contraction

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Australian business investment fell a surprisingly sharp 4 per cent last quarter as miners and manufacturers cut back on spending, a disappointing report underlining the real risk that the whole economy may have contracted.

[SYDNEY] Australian business investment fell a surprisingly sharp 4 per cent last quarter as miners and manufacturers cut back on spending, a disappointing report underlining the real risk that the whole economy may have contracted.

Thursday's figures from the Australian Bureau of Statistics'showed business investment fell 4 per cent in the third quarter, when analysts had looked for a drop of only 2.5 per cent.

With spending on equipment and building declining, investment likely took another heavy toll on gross domestic product (GDP) which was already looking soft after reported weakness in retail sales.

Such was the drag that the economy may have shrunk in the quarter, something that has only happened three times in the past 25 years. The last negative quarter was back in 2011 and that was caused by massive flooding in Queensland.

The GDP report is due on Dec 7.

The data was also a blow to the Reserve Bank of Australia's (RBA) hopes for a revival in investment outside of the hard-hit mining sector.

Neither was the outlook much brighter with the latest survey estimate of planned investment for 2016/17 coming in well under expectations at US$106.9 billion. Analysts had looked for something around A$111 billion (S$118 billion).

Investors reacted by nudging the local dollar down slightly to US$0.7380. The currency had already been under pressure after the US dollar jumped on higher Treasury yields.

Interbank futures still suggest the market sees scant chance of another cut in interest rates for the next few months, though any thought of a hike has also been priced out.

REUTERS