Australian business investment falls at double expected pace

[SYDNEY] Australian business investment fell twice as fast as economists predicted last quarter, signaling the central bank's targeted transition to growth outside mining is yet to gain traction. The currency slumped half a U.S. cent.

Capital spending fell 4.4 per cent from the final three months of last year, data showed Thursday, compared with a median forecast for a 2.2 per cent drop. Companies predicted they would invest A$104 billion (US$80 billion) in the year ending June 30, 2016, a 25 per cent fall from the estimate a year earlier.

"The transition toward investment in the non-mining sectors remains quite some time away," Felicity Emmett, an economist at Australia & New Zealand Banking Group Ltd., said in a research report. "The further decline, from an already weak outlook suggests that businesses are severely lacking in the confidence required to lift investment. The Reserve Bank of Australia will be disappointed by this soft result."

The central bank has cut its benchmark interest rate to a record-low 2 per cent as it struggles to drive a rebalance of growth toward industries like manufacturing, residential construction and services. Australia, an engine room of the decade-long global commodity boom, is forecasting a 90 per cent plunge in spending on projects, calling time on its biggest resources bonanza since the 1850s gold rush.

Australian mining investment in 2015-16 is projected at A$52.2 billion, down 35 per cent from the year-earlier estimate, today's report showed.

Traders boosted bets to price in about a 50-50 chance the RBA will lower the key rate by another quarter point in November. That helped send the local dollar down to trade at 76.93 US cents at 12:08 p.m. in Sydney from 77.54 cents before the release. The currency is on track for its steepest monthly decline since January.

After a collapse in prices from oil to iron ore, the value of Australia's approved and financed mining and energy projects is forecast fall to about A$15 billion in 2017, from A$226 billion at the end of April, the Department of Industry and Science said Wednesday.

Planned iron ore projects worth at least A$10 billion have been canceled since October. Billionaire Gina Rinehart's Roy Hill - due to ship later this year - is Australia's last remaining mining project being developed worth A$5 billion or more.

Today's report showed spending on buildings and structures slumped 6.5 per cent last quarter. Company investment in new plant and equipment declined 0.5 per cent.

BLOOMBERG