Australia | Nov 29 2007
By Greg Peel
Private sector capital expenditure fell by 6.5% in the September quarter – a period which included some of the worst of the credit crunch jitters. The biggest falls were in spending on building and structures while more modest falls were felt in plant, equipment and machinery. At a time of a raging economy, is Australian business becoming more cautious?
Not so. Economists point out that while capex may have fallen in the quarter, the overall level of spend remains high. “We still expect capital stock to grow at rates not seen since the 1970s”, said Commonwealth Bank’s Monica Eley. Strong business investment is needed in Australia as the economy bumps up against capacity constraints. With increased capacity comes increased economic activity and increased productivity (which fights against inflation).
Economists have seized on what to them is more important – the reading on capital spending plans for FY08. These have barely wavered. “This points to a degree of confidence by business in the underlying strength of the Australian economy and the near-term outlook”, said ANZ’s Mark Rodrigues.
Eley is expecting the real value of business investment spending will rise by 12% in FY08 after an 8% rise in FY07. At that point spending on buildings and structures is expected to outpace plant and equipment.