Australia | Feb 28 2008
By Chris Shaw
Inflation is certainly an area of concern in the Australian economy but today’s better than expected capital expenditure (capex) data shows the business community remains confident in the underlying economic outlook and the business investment boom has yet to reach a peak.
Capex for the December quarter rose 5.3%, well above market expectations of a 3.1% rise and Westpac’s estimate of a 2.7% increase, the bank noting the rise was spread across all sectors of the economy as mining capex rose 5.6%, manufacturing was up 8.7% and other industries rose 3.8%.
According to the bank the figures for equipment spending suggest a 0.3% boost to GDP, an estimate TD Securities senior strategist Joshua Williamson agrees with. Also of note according to Williamson was the first estimate of capex for 2008/09 came in at $78.5 billion, which again was better than the market’s $70 billion forecast.Commonwealth Bank economist Martin Arnold suggests capex spending over the next year could in fact break through the $100 billion mark.
Such a strong estimate is not really a surprise in Williamson’s view as high levels of investment make sense given continued high levels of capacity utilisation, but while it suggests a boost to export performance the outcome is less clear in terms of providing some improvement to the current level of inflation pressures.
Arnold takes the view the Reserve Bank of Austalia will be happy with the figures as the spending is a response to the economy’s current capacity constraints, while the increased spending in the manufacturing sector implies a rebalancing of the Australian economy is continuing.
ANZ Bank senior economist Mark Rodrigues suggests a pleasing trend as implied by the figures is businesses have not changed their investment plans despite the less than favourable funding environment of recent months, which reinforces the view the domestic economic outlook remains solid.
Williamson suggests the Australian dollar should enjoy some support on the back of the figures and while Westpac expected something similar it notes the market reaction implies the Australian dollar is running out of steam a little bit after recent gains, so the bank suggests current levels of above 94c against the US dollar may be a good level for taking some profits.