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Australia business spending shows signs of life outside mining

Thursday, September 1, 2016 - 11:28

39505424 - 16_08_2016 - FILES-AUSTRALIA-BRITAIN-RESOURCES-MINING-EARNINGS.jpg
Australian business investment tumbled again last quarter as miners continued to cut back following their decade-long boom, but an upgrade in spending plans for this year provided early signs of a long-awaited recovery elsewhere.

[SYDNEY] Australian business investment tumbled again last quarter as miners continued to cut back following their decade-long boom, but an upgrade in spending plans for this year provided early signs of a long-awaited recovery elsewhere.

The lift in planned investment will give some comfort to the Reserve Bank of Australia (RBA) which is counting on a stronger pick up in the broader economy after cutting its cash rates twice this year to a record low 1.5 per cent.

Thursday's data from the Australian Bureau of Statistics (ABS) reported investment fell 5.4 per cent to A$28.71 billion (S$29.4 billion) in the second quarter.

Yet spending on equipment, plant and machinery rose 2.8 per cent, with the non-mining sector driving the growth. New investment in manufacturing climbed 13 per cent even as mining dived 16 per cent.

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"There are gradual signs of the rotation that the RBA is looking for," said JP Morgan economist Ben Jarman.

"I think particularly today's capex data will give the RBA a little bit of heart that there's still some transmission from what they've done already. That's supporting the non-mining economy to some extent."

Spending plans for 2015/16 came in at A$105.17 billion, 15.2 per cent higher than the previous estimate for the year and above the A$97 billion analysts had looked for.

Resource-rich Australia has been struggling with a global slump in commodity prices which has kept economic growth to below-par levels for going on four years.

A slump in business investment subtracted no less than 1.9 per centage points from gross domestic product (GDP) in the year to March. Without that drag, Australia's A$1.6 trillion economy would have expanded at a breakneck pace of 5 per cent.

Figures due next week are generally expected to show the economy grew around 0.4 per cent last quarter, from the first quarter when it rose a surprisingly brisk 1.1 per cent.

The economy is also likely to get some support from planned infrastructure investments by Australia's state governments, helping fill the chasm left by the mining sector.

A recovery in investment would be welcome, given continued weakness in the country's retail sector.

Data out on Thursday showed retail sales were flat in July although analysts had hoped for a rise of around 0.3 per cent. The main culprit was department stores where sales dived an unusually steep 6.2 per cent.

REUTERS

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