Australian Business Investment Slows Less Than Forecast

Australian business investment slowed less than economists forecast last quarter as stronger mining spending outweighed a decline in manufacturing.

Capital spending gained 2.8 percent from the second quarter, when it rose 3.4 percent, the Bureau of Statistics said in Sydney today. That compares with the median forecast for a 2 percent gain in a Bloomberg News survey of 20 economists.

Reserve Bank of Australia Governor Glenn Stevens held the key interest rate at 3.25 percent this month, having cut the benchmark five times since embarking on a series of reductions in November 2011 as the country’s resource boom cools. He said in minutes of the meeting that “further easing may be appropriate.” While today’s report showed a rise in mining investment from July to September, a projection for the 12 months ending June 30, 2013, was 8.1 percent lower.

“The forward-looking components of this survey are consistent with the RBA’s easing bias,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney. “You can see clearly capital expenditure is easing, clearly the labor market is easing and the unemployment rate is going to head higher.”

The central bank earlier this month predicted a peak in resource spending at about 8 percent of gross domestic product from a prior 9 percent as the boom is expected to crest at a lower level.

Investment Projection

Today’s report showed Australian companies forecast investment of A$173.4 billion ($182 billion) in the year ending June 30, which was 3.3 percent lower than their estimate three months earlier. Australian mining investment in 2012-13 is projected at A$109.4 billion, compared with A$119 billion three months earlier.

The local dollar slid after the report, buying $1.0463 at 2 p.m. in Sydney from $1.0470 before the release. The yield on Australia’s benchmark 10-year note fell to 3.19 percent from 3.21 percent yesterday.

Traders are pricing in a 74 percent chance that the RBA will cut its main rate to 3 percent on Dec. 4, up from a 69 percent probability seen yesterday, swaps data compiled by Bloomberg show. That would match the half-century low of 3 percent reached at the height of the 2008-2009 global financial crisis.

Buildings, Equipment

Today’s report showed spending on buildings and structures rose 1 percent last quarter. Company investment in new plant and equipment advanced 6.2 percent, it showed.

Australia’s currency has risen 4.6 percent against the U.S. dollar in the past year, the best performer after the New Zealand dollar among Group of 10 currencies, propelled by a mining boom as urbanization in China drives demand for iron ore, liquefied natural gas and coal. The RBA cut the overnight cash-rate target by 1.5 percentage points from November 2011 to October.

Stevens, in a speech last week, said Australia’s economy will need to adapt to a slower pace of growth in China, higher national savings at home and a decline in the resource industry’s contribution to gross domestic product.

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