Bloomberg News

Australia Business Investment Gains Most in 15 Years on Mining

November 30, 2011

Nov. 30 (Bloomberg) -- Australian business investment jumped by the most in 15 years in the third quarter as the growth of mining projects accelerated, bolstering the nation’s currency after four weeks of declines.

Capital spending rose 12.3 percent from the three months through June, when it gained a revised 6.2 percent, the Bureau of Statistics said in Sydney today. The advance was the biggest since the second quarter of 1996 and was higher than all except one forecast among 20 economists in a Bloomberg News survey.

Companies including BHP Billiton Ltd. are ramping up investment in equipment and hiring workers to meet demand from China and India for coal, iron ore and natural gas. The report was released just as central bank data showed lending to consumers and businesses weakened, reflecting the other side of Australia’s so-called two-speed economy that’s been slowed by the highest borrowing costs in the developed world.

“The capital expenditure numbers were fantastic,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker. “The weakness in credit is a worry in the sense it’s at recessionary levels.”

Loans provided by Australian banks and finance companies increased 0.2 percent in October from the previous month, the Reserve Bank of Australia said today. Lending to companies was unchanged from September, the report showed.

Today’s business investment report showed spending on buildings and structures rose 17.1 percent in the third quarter, and investment in new plant and equipment advanced 6.3 percent.

Spending Plans

Australian companies forecast investment of A$158 billion ($159 billion) in the year ending June 30, 5.1 percent higher than their estimate three months earlier, today’s report showed.

“The Australian economy has rebalanced away from a credit- driven property and consumption boom toward more modest consumption, strong exports and investment,” Carr said.

An index of Australian house prices has fallen every month this year, real-estate monitoring company RP Data-Rismark said in a report today. Prices are down 4 percent in October from a year earlier, it showed.

The central bank predicts growth will accelerate next year, driven by the mining boom, even as the global economy slows.

Australia’s central bank has responded to heightened global risks and less inflation pressure by lowering its benchmark rate by a quarter percentage point to 4.5 percent on Nov. 1, the first reduction in 31 months.

Currency Swings

The local currency has declined 6 percent in the past month as investors bet Europe’s crisis will force the central bank to keep lowering borrowing costs. It traded at $1.0063 at of 12:56 p.m. in Sydney, up from $1.0022 before the data on business investment.

The Organization for Economic Cooperation and Development said this week mounting concern about the survival of Europe’s monetary union has caused global growth to stall.

The 34 OECD economies will expand 1.9 percent this year and 1.6 percent in 2012, down from 2.3 percent and 2.8 percent predicted in May, the Paris-based organization said in its twice-annual global outlook released Nov. 28.

Australia’s gross domestic product will increase 4 percent next year, tied with Chile as the best-projected performer among OECD members.

The urbanization of hundreds of millions of people in China and India has intensified demand for Australia’s mineral wealth, produced by companies including BHP and Rio Tinto Group.

Minerals, Energy

The Bureau of Resources and Energy Economics said yesterday that the value of minerals and energy projects under development in Australia rose to a record A$231.8 billion as of Oct. 31. The value of projects increased 34 percent from April and 74 percent from a year earlier, it said in a report.

The surge in commodity extraction has also spurred hiring and Australia’s jobless rate -- at 5.2 percent in October -- was almost half the euro zone’s 10.2 percent in September.

The government forecast Australian unemployment will increase to 5.5 percent in June 2012, a report showed yesterday. Treasurer Wayne Swan said he expects 300,000 new jobs to be created in Australia, a nation of 22.8 million people, in the next few years.

“We’re not immune from what’s going on in the global economy,” Swan told reporters in Canberra yesterday after releasing the government’s latest economic forecasts. “What’s going on in Europe is just a reminder to us that we’ve got to strive even harder to do better.”

--With assistance from Daniel Petrie in Sydney. Editors: Brendan Murray, Garfield Reynolds

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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