Australian Firms' Investment Plans Weakest in Nine Years

  • Businesses expect to outlay A$82.6 billion in 2016-17
  • Shift to non-mining investment so far fails to materialize

Australian companies’s annual investment plans fell to the lowest level in nine years as an expected pickup in spending by non-mining industries remains elusive.

Firms plan to outlay A$82.6 billion of investment in the financial year beginning July 1, the weakest reading since 2007-08, government data showed Wednesday. The currency fell.

The Reserve Bank of Australia had hoped that as mining investment and commodity prices retreated from record highs, easier monetary policy and a lower currency would encourage non-resources firms to open their pocket books. Yet it hasn’t been quite that simple. Governor Glenn Stevens acknowledged as much when he lamented this month the failure of “animal spirits” to really take hold.

“Capital spending outside of mining is considerably weaker now than I would have expected,” Stevens told a parliamentary panel Feb. 12. “There is very little sign at this point of intentions to invest more.”

Currency Falls

The Australian dollar fell a quarter of a U.S. cent on the data and was trading at 71.67 cents at 12:26 p.m. in Sydney.

“This will be worrying for the RBA and may lead the bank to conclude that the
investment outlook is bleaker than it had thought,” said Kate Hickie,
assistant economist at Capital Economics. “This could prompt the RBA to cut
rates again soon.”

Part of the reason for the lack of spending is the country’s manufacturing industries shrank as the currency soared to a post-float record of $1.10, fueled by the developed world’s highest interest rates. The car industry is set to shut down by 2017 and aluminum producers have closed. At the same time, Australian consumers are saddled with a massive debt burden that constrains their ability to spend and boost demand.

The currency has fallen 30 percent against the U.S. dollar over the past three years.

“There are some glimmers that a weaker Aussie is helping the rebalancing,” said Sean Callow, a foreign-exchange strategist in Sydney at Westpac Banking Corp. “But businesses at this point do not look as though they’re willing to commit to expanding their capacity.”

Actual investment in the fourth quarter of 2015 rose 0.8 percent from the previous three months.

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