SYDNEY, Nov 26 (Reuters) - Australian business investment
unexpectedly fell last quarter, although planned investment for
2009/10 was revised up sharply, suggesting the central bank may
still raise interest rates next week.
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KEY POINTS:
* Q3 real private sector capital expenditure -3.9 pct q/q, seasonally adjusted (median forecast +1.0 pct)
* Q3 building investment -4.8 pct, plant/machinery -2.9 pct
* Latest estimate for 2009/10 capex A$105.0 bln vs previous A$90.56 bln estimate
* For brief table click on:
COMMENTARY:
KIERAN DAVIES, CHIEF ECONOMIST, RBS
'There is a lot of near-term weakness in spending but the bigger shift in the picture is that resource projects are starting again. The outlook over the course of next year is that investment will be getting a lift from resource projects such as the Gorgon (LNG project off west Australia).
'We think the RBA is still likely to hike by a quarter of a point next week.'
PAUL BRENNAN, CO-HEAD MARKET ECONOMICS, CITI
'It's pretty much what we were expecting, there's still an impact there from the global financial crisis and downturn in the economy and that will probably continue for a while longer.
'However, all the signs are that with improving business confidence we'll see business capex picking up again next year.
'For the RBA it gives them more confidence that growth will be back around trend by the end of next year. It's probably what they were expecting ... given that things are improving in line with expectations, we'll see them raise interest rates next week.'
ANDREW HANLAN, SENIOR ECONOMIST, WESTPAC
'The Reserve Bank (of Australia) will be looking through this pocket of weakness in business investment and, in the end, this drop in investment was not as great as could have been expected.
Overall activity is looking to be fairly healthy in the second half of this year. A housing boom has already started and there's been a massive surge in public investment.
'For the Reserve Bank, rates at these levels are too low and we anticipate a move upwards in December of 25 basis points.'
JAMES MCINTYRE, ECONOMIST, COMMONWEALTH BANK
'We were forecasting a 4 percent fall, so the headline number was roughly in line. The only real surprise was plant/machinery, which has the most impact on GDP. That was a bit stronger than we were looking for, so it gives a bit of upside to our GDP figuring.
'In terms of expectations we thought it was a pretty strong result. It signals that firms are coming back on line with their capex, in line with an average upgrade cycle.'
HELEN KEVANS, ECONOMIST, J.P. MORGAN
'The numbers for the third quarter were a bit disappointing, but the number that we focus on is a forward looking component and it looks like spending plans are heavily upgraded for the fiscal year 2009/10, which is very positive for the outlook.
'The medium term investment outlook is looking very strong. That will of course have positive implications for employment and spending and it'll probably add to inflationary pressures, given that the Aussie economy will probably face capacity constraints and skill shortages in 2010. So we could say the policy will continue to be tightened throughout next year.
'This doesn't change our forecast for the RBA next week. We do forecast a 25 basis point move next Tuesday.'
MARKET REACTION:
- The Australian dollar fell to $0.9266 while bill futures edged up 0.01 point to 95.88.
LINKS:
- The Australian Bureau of Statistics Web site is: www.abs.gov.au
- For all Australian news and data, 3000 Xtra users can click on
BACKGROUND:
- The median forecast was for a 1.0 percent rise in overall capex, but that masked a very wide range of estimates which went from a drop of 5.0 pct to a rise of 4.5 pct.
- Uncertainty is great over Q3, in part because tax breaks led to stronger-than-expected spending in Q2 which could lead to a natural pullback.
- Investment also has long lead times, particularly in mining, and it was possible weakness early in the year was still crimping spending in Q3.
- On the other hand, business confidence improved markedly in the quarter as the economy stabilised and strong demand for resources from China supported exports of iron ore and coal.
- The RBA says its liaison with business points to a significant revival in investment plans in recent months, leading to expectations the latest estimate of spending for 2009/10 will be strong. A result of around A$99 billion would be considered solid.
- The plant and machinery numbers from the investment report feed into gross domestic product (GDP) data for the third quarter due out next month.
(Reporting by Sydney newsroom) (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) Keywords: AUSTRALIA ECONOMY/VIEW (wayne.cole@reuters.com ; +61 2 9373 1813; Reuters Messaging: wayne.cole.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
****************************************************************
KEY POINTS:
* Q3 real private sector capital expenditure -3.9 pct q/q, seasonally adjusted (median forecast +1.0 pct)
* Q3 building investment -4.8 pct, plant/machinery -2.9 pct
* Latest estimate for 2009/10 capex A$105.0 bln vs previous A$90.56 bln estimate
* For brief table click on:
COMMENTARY:
KIERAN DAVIES, CHIEF ECONOMIST, RBS
'There is a lot of near-term weakness in spending but the bigger shift in the picture is that resource projects are starting again. The outlook over the course of next year is that investment will be getting a lift from resource projects such as the Gorgon (LNG project off west Australia).
'We think the RBA is still likely to hike by a quarter of a point next week.'
PAUL BRENNAN, CO-HEAD MARKET ECONOMICS, CITI
'It's pretty much what we were expecting, there's still an impact there from the global financial crisis and downturn in the economy and that will probably continue for a while longer.
'However, all the signs are that with improving business confidence we'll see business capex picking up again next year.
'For the RBA it gives them more confidence that growth will be back around trend by the end of next year. It's probably what they were expecting ... given that things are improving in line with expectations, we'll see them raise interest rates next week.'
ANDREW HANLAN, SENIOR ECONOMIST, WESTPAC
'The Reserve Bank (of Australia) will be looking through this pocket of weakness in business investment and, in the end, this drop in investment was not as great as could have been expected.
Overall activity is looking to be fairly healthy in the second half of this year. A housing boom has already started and there's been a massive surge in public investment.
'For the Reserve Bank, rates at these levels are too low and we anticipate a move upwards in December of 25 basis points.'
JAMES MCINTYRE, ECONOMIST, COMMONWEALTH BANK
'We were forecasting a 4 percent fall, so the headline number was roughly in line. The only real surprise was plant/machinery, which has the most impact on GDP. That was a bit stronger than we were looking for, so it gives a bit of upside to our GDP figuring.
'In terms of expectations we thought it was a pretty strong result. It signals that firms are coming back on line with their capex, in line with an average upgrade cycle.'
HELEN KEVANS, ECONOMIST, J.P. MORGAN
'The numbers for the third quarter were a bit disappointing, but the number that we focus on is a forward looking component and it looks like spending plans are heavily upgraded for the fiscal year 2009/10, which is very positive for the outlook.
'The medium term investment outlook is looking very strong. That will of course have positive implications for employment and spending and it'll probably add to inflationary pressures, given that the Aussie economy will probably face capacity constraints and skill shortages in 2010. So we could say the policy will continue to be tightened throughout next year.
'This doesn't change our forecast for the RBA next week. We do forecast a 25 basis point move next Tuesday.'
MARKET REACTION:
- The Australian dollar fell to $0.9266 while bill futures edged up 0.01 point to 95.88.
LINKS:
- The Australian Bureau of Statistics Web site is: www.abs.gov.au
- For all Australian news and data, 3000 Xtra users can click on
BACKGROUND:
- The median forecast was for a 1.0 percent rise in overall capex, but that masked a very wide range of estimates which went from a drop of 5.0 pct to a rise of 4.5 pct.
- Uncertainty is great over Q3, in part because tax breaks led to stronger-than-expected spending in Q2 which could lead to a natural pullback.
- Investment also has long lead times, particularly in mining, and it was possible weakness early in the year was still crimping spending in Q3.
- On the other hand, business confidence improved markedly in the quarter as the economy stabilised and strong demand for resources from China supported exports of iron ore and coal.
- The RBA says its liaison with business points to a significant revival in investment plans in recent months, leading to expectations the latest estimate of spending for 2009/10 will be strong. A result of around A$99 billion would be considered solid.
- The plant and machinery numbers from the investment report feed into gross domestic product (GDP) data for the third quarter due out next month.
(Reporting by Sydney newsroom) (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) Keywords: AUSTRALIA ECONOMY/VIEW (wayne.cole@reuters.com ; +61 2 9373 1813; Reuters Messaging: wayne.cole.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.