You are here

Australia Q2 business investment sags, spending outlook picks up

[SYDNEY] Australian business investment surprisingly fell last quarter though companies upgraded spending plans for the year, sending a more positive signal for an economy that is otherwise faced with flagging confidence and global trade uncertainties.

During the June quarter, investment fell 0.5 per cent to A$29.23 billion (S$27.4 billion), the figures from the Australian Bureau of Statistics (ABS) showed on Thursday. That confounded expectations for a 0.5 per cent increase and piled on top of a 1.7 per cent fall in the first quarter.

However, spending on equipment, plant and machinery jumped 2.5 per cent and will contribute to economic growth in the June quarter. Analysts were closely watching the spending outlook, which showed firms were more optimistic about the current year.

"It was a slightly better survey than the headline number suggests," said RBC economist Su-lin Ong.

Market voices on:

"The key component for capex that goes into GDP calculations was pretty decent. The 2.5 per cent increase for the quarter is very encouraging," she added.

Figures due next week are likely to show Australia's A$1.9 trillion annual gross domestic product (GDP) expanded anywhere between 0.2 per cent and 0.5 per cent in the quarter following an already pedestrian 0.4 per cent the previous quarter.

"In addition, spending plans for 2019/20 have been revised up. It's still modest, a tad firmer than we'd been expecting given the weakness in business confidence recently."

The third estimate for 2019/20 came in at A$113.4 billion, nearly 15 per cent higher than the second estimate for the year and was broadly in-line with expectations.

The latest estimate for 2018/19 came in at A$122.1 billion, mostly unchanged from the previous estimate.

The boost to spending plans come even as the outlook for business investment globally appears murky with the Sino-US trade war showing no signs of resolution. The uncertainty as to how the dispute will play out has prompted businesses to stay on the sidelines rather than invest.

The indecisiveness is clear in manufacturing surveys from Germany to South Korea - countries heavily integrated in the global supply chain.

Australia, however, has so far not been hit by the trade war as its biggest exports - iron ore, coal, gold, tourism and education - are still in huge demand.

In addition, public spending is in a strong upswing, with flow-through effects on the non-mining sector as Australia tries to meet the needs of its ballooning population.

The surge in exports and the government's commitment to infrastructure spending together with early signs of revival in the country's housing market has boosted policymakers' optimism about the economy.

The Reserve Bank of Australia (RBA) is now expecting a "gentle" upturn in the country's A$1.9 trillion economy after it cut rates in June and July to a record low of 1 per cent to revive growth and inflation.

The RBA is likely to hold policy at its September meeting next week though financial futures are pricing in a cut in November and a follow-on move in February next year.