Australia business investment hits 7-year top in Q4, outlook upbeat

AUSTRALIAN business investment rose to a seven-year high in the December quarter helped by a jump in spending on retail and accommodation, while firms also had an upbeat outlook for 2023/24.

Data from the Australian Bureau of Statistics on Thursday showed private capital spending climbed a real 2.2 per cent in the fourth quarter, beating forecasts of a 1.3 per cent increase. Spending of A$35 billion (S$32 billion) was the highest since early 2016.

Firms plan to invest around A$159 billion for the current year to June, while first estimate for 2023/24 came in at A$129.7 billion, on the high side of forecasts.

These very early predictions tend to be conservative and get revised up by firms over time.

For the December quarter alone, investment by Australia’s huge mining sector bounced 0.7 per cent after a soft September quarter, with spending by the rest of industry increasing 2.8 per cent.

The rise will feed into data on gross domestic product (GDP) due next week where forecasts are clustered around growth of 0.8 per cent, led mainly by strength in international trade and consumer spending on services.

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This would leave annual growth at a healthy 2.7 per cent, though that is expected to slow markedly this year as high interest rates and falling house prices eat into spending power.

The Reserve Bank of Australia (RBA) has hiked rates by a wallet-busting 325 basis points since May and is warning further increases will be needed to get a grip on inflation.

Markets wager the current cash rate of 3.35 per cent could peak as high as 4.10 per cent or 4.35 per cent, though the upside risk was tempered a little by a surprisingly soft report on wages.

“It was a ‘goldilocks’ report that indicates wages pressures are neither too cold nor too hot,” said Gareth Aird, chief economist at CBA.

“The RBA does not need to generate a meaningful lift in the unemployment rate to bring inflation down given wages growth is consistent with the inflation target,” he added, and expects rates to top out at 3.85 per cent. REUTERS