Australia Business Investment Unexpectedly Fell Last Quarter

Australian business investment unexpectedly declined last quarter amid weakness in manufacturing, while mining companies pared spending plans.

Capital spending fell 1.2 percent from the third quarter, when it rose a revised 1.1 percent, the Bureau of Statistics said in Sydney today. That compares with the median forecast for a 1 percent gain in a Bloomberg News survey of 19 economists.

Reserve Bank of Australia Governor Glenn Stevens kept the key interest rate unchanged at 3 percent this month, having cut the benchmark 1.75 percentage points to 3 percent since November 2011 as the country’s resource boom approaches a crest. He said in testimony to a parliamentary panel last week that industries outside mining will have more room to grow, while adding the transition from resource investment may not be “seamless.”

“A peak in mining investment is looming, creating the need for other sectors such as housing construction and non-mining business investment to strengthen,” Westpac Banking Corp. chief economist Bill Evans, who predicted a 0.7 percent drop, said in a research report before the release. “The precise timing of this rebalancing and the smoothness of the transition remains particularly uncertain.”

Credit Growth

Today’s report showed Australian companies forecast investment of A$168.2 billion ($172 billion) in the year ending June 30, which was 1.3 percent lower than their estimate three months earlier. They predicted investment of A$152.5 billion in 2013-14. Australian mining investment in 2012-13 is projected at A$105.1 billion, compared with A$108.1 billion three months earlier. In 2013-14, mining companies estimate spending A$100.2 billion.

A separate report from the nation’s central bank showed private-sector credit increased 0.2 percent in January from a month earlier, and expanded 3.6 percent from a year earlier. Lending to businesses was unchanged from a month earlier, the data showed.

The local dollar bought $1.0244 at 12:02 p.m. in Sydney from $1.0227 before the release. Traders are pricing in a 25 percent chance the RBA will cut its main rate to a record-low 2.75 percent next week, swaps data compiled by Bloomberg show.

Today’s report showed spending on buildings and structures fell 0.6 percent last quarter. Company investment in new plant and equipment declined 2.3 percent, it showed.

Strong Dollar

The nation’s currency has remained above parity with the U.S. dollar for eight months, the longest stretch since it was freely floated in 1983, propelled by a mining boom and central bank asset purchases in major developed nations. The current 3 percent cash rate matches a half-century low reached during the 2009 global recession.

“The economy will be adjusting to the peak of the mining boom and some other areas of demand will have room to grow more quickly than they have in recent years,” Stevens said in parliamentary testimony Feb. 22. “This transition will not necessarily be seamless, these things seldom are, but there are reasonable prospects of it occurring over time.”