Swan Forecasts Record Investment as Australia’s Economy ‘Growing Solidly’

Australia’s economy is “growing solidly” and capital expenditure by businesses is forecast to rise 32 percent to a record A$158 billion ($161 billion) this financial year, Treasurer Wayne Swan said yesterday.

“That spending, although a drag on productivity now, will increase our economy’s capacity down the track,” Swan said in his weekly economic note. His office also released for public comment an interim report on the tax treatment of losses, in a move he said could “encourage investment in businesses that are struggling or that are just starting up.”

Australia, the only economy in the Group of 10 to avoid a recession during the global credit crisis, expanded 1 percent in the third quarter, faster than earlier estimated. Still, the country’s central bank cut its benchmark interest rate on Dec. 6 for a second straight month, citing Europe’s “much more difficult” financing conditions.

The cut marked the RBA’s first consecutive easing since the depths of the world financial crisis in 2009 and reflected a worsening global outlook that’s weighing on Australia’s exports.

“There’s no doubt the global instability is hitting our economy and our budget,” Swan said. “European leaders made progress during the week on addressing the sovereign debt crisis, but clearly the world now wants to see the talk turned into action. The global community and international financial markets need to see the full details and swift implementation of Europe’s plans.”

Swan said the government intends to boost productivity in Australia, which has declined following “a decade of neglect of investment in critical infrastructure and skills.”

To contact the reporter on this story: Soraya Permatasari in Melbourne at soraya@bloomberg.net

To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net

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