Australian Business Investment Rose Twice as Fast as Expected on Miners

Australian business investment rose twice as fast as economists had forecast in the third quarter, with an expansion in offices, warehouses and factories offsetting a slump in equipment spending.

Capital outlays advanced 6.2 percent from the previous quarter, compared with the median forecast for a 3.1 percent gain in a Bloomberg News survey of 20 economists, a Bureau of Statistics report showed today in Sydney. Investment in new plant and equipment, which feeds into the nation’s gross domestic product, fell 1.1 percent.

The report indicates economic growth was less than previously anticipated in July to September, according to Westpac Banking Corp., which cut its GDP estimate by half to 0.3 percent. A slower expansion rate would suggest little immediate need for the Reserve Bank of Australia to add to this month’s interest-rate increase, said economist Joshua Williamson.

“The data makes the RBA look very pre-emptive,” said Williamson, a senior economist at Citigroup Inc. in Sydney. “GDP growth could remain around trend until the second quarter next year, leaving the RBA on hold until early in the second quarter.”

Australia’s central bank on Nov. 2 ended a five-month pause in rate increases, boosting borrowing costs by a quarter percentage point to 4.75 percent.

Dollar Slips

The local dollar declined, trading at 97.86 U.S. cents as of 1:37 p.m. in Sydney from 98.29 just before the release. The S&P/ASX 200 index of stocks was up 0.1 percent at 4,591.30.

Australian companies forecast investment of A$123.9 billion ($121 billion) in the year ending June 30, 2011, unchanged from their estimate three months earlier and 19.5 percent more than the corresponding forecast last year.

“Rates will still need to go higher from here, albeit not for some time,” Katie Dean, head of Australian macroeconomics at Australia & New Zealand Banking Group in Melbourne, wrote in a report. “A weak third-quarter GDP, while largely historical, does mean that there is no urgent need for follow-up tightening,” she added, reiterating her forecast for an increase in the second quarter of 2011.

Spending on buildings and structures advanced 13.4 percent in the third quarter, today’s report showed.

Tax Impact

Some companies had signaled plans to slow their investment growth after the ruling Labor party in May said it would impose a tax on mining profits.

Following that pressure, Prime Minister Julia Gillard in July reduced the tax to a 30 percent levy on iron ore and coal profits from predecessor Kevin Rudd’s 40 percent tax on all resources. Independent lawmakers including Andrew Wilkie, who hold the balance of power in the lower house, said her current proposal may still be blocked.

Demand from China for iron ore, coal and energy has spurred companies such as Chevron Corp. to expand projects. Construction is underway on Chevron’s A$43 billion liquefied natural gas Gorgon venture in Western Australia, increasing demand for skilled workers. BG Group, based in Reading, U.K., said last month it will begin work on a $15 billion LNG venture in Queensland, generating 5,000 construction jobs.

The jobless rate was 5.4 percent in October as employers added workers for an eighth straight month. By contrast, the U.S. unemployment rate was 9.6 percent.

Rate Campaign

The jobs expansion is among reasons RBA Governor Glenn Stevens resumed raising rates this month. He has raised the benchmark lending rate seven times since October 2009.

Australia’s two decades of nearly uninterrupted growth mean the economy lacks the capacity to expand much faster without spurring inflation, central bank Deputy Governor Ric Battellino said last week.

“With a large amount of money continuing to flow into the country over the next couple of years as a result of the resources boom, the challenge will be to manage the economy in a way that keeps economic growth on a sustainable path, with inflation contained,” Battellino said in a speech on Nov. 18.

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

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

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