Bloomberg News

Australian Business Investment Rose Last Quarter on Mining Plans

August 29, 2012

Australian business investment rose more than economists forecast in the second quarter as an increase by mining companies outpaced a decline in spending by manufacturers.

Capital expenditures gained 3.4 percent from the first three months of the year, when the figure rose a revised 7.7 percent, the Bureau of Statistics said in Sydney today. That compares with the median forecast for a 3 percent gain in a Bloomberg News survey of 17 economists.

Reserve Bank of Australia Governor Glenn Stevens said last week that policy makers are prepared to respond in the event the economy slows, predicting the nation’s mining investment boom has at least another year before easing. A pipeline of resource projects has driven up the nation’s currency and damaged manufacturing, retail and tourism industries, producing what policy makers have called a “two-speed” economy.

“The cap-ex picture will continue to be dominated by the two-speed story,” Michael Blythe, chief economist in Sydney at Commonwealth Bank of Australia, said in a research report before the release. “Non-mining investment plans remain quite weak, while mining investment intentions continue to be above average. The outlook for mining investment remains strong even as some mining companies have adopted a more cautious approach,” he said.

Spending on buildings and structures rose 4.8 percent in the second quarter, today’s report showed. Company investment in new plant and equipment advanced 1.2 percent.

2012-13 Spending

Australian companies forecast investment of A$181.5 billion ($187.3 billion) in the year ending June 30, which was 4.7 percent higher than their estimate three months earlier, the report showed.

Australia’s currency has risen about 16 percent against the U.S. dollar in the past two years, the best performer among the 16 major currencies tracked by Bloomberg, propelled by a mining boom as urbanization in China drives demand for iron ore, liquefied natural gas and coal.

Australia’s central bank lowered borrowing costs by a total of 50 basis points late last year and a further 75 basis points in May and June to help shield the economy from Europe’s debt crisis and slower growth in China. It held the key rate at 3.5 percent, the highest among major developed economies, at the past two meetings.

The reductions in rates have resulted in borrowing costs “a little below their medium-term averages,” Stevens told a parliamentary panel in Canberra on Aug. 24.

Factory Slump

The resource projects pipeline is spurring companies to increase hiring and helping cushion a slump in manufacturing and services.

Chevron Corp., Royal Dutch Shell Plc, Woodside Petroleum Ltd. and ConocoPhillips are among energy companies spending $180 billion to explore and develop gas fields in Australia.

Rio Tinto Group said in April that it has begun a four- month recruitment drive to hire 6,000 workers for A$22 billion of projects in Western Australia, the Northern Territory, Queensland and New South Wales.

Australia’s unemployment rate has remained in a range of 5 percent to 5.3 percent for the past 15 months. The economy added jobs in four of the past five months and unemployment declined to 5.2 percent in July from a revised 5.3 percent in the prior month, a government report showed Aug. 9.

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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