Australia | Feb 25 2010
By Chris Shaw
Australian capital expenditure numbers for the December quarter of last year have surprised on the upside, an increase of 5.5% coming in well above the market consensus forecast of a gain of 2.0%. Driving the result was a 13.7% increase in manufacturing capex, while mining sector investment fell 1.2% in the period.
According to ANZ senior economist Shane Lee the 12% increase in plant and equipment spending feeds directly into Australia's GDP numbers, so he has revised up his growth expectations for the December quarter to an outcome of 1.0%.
Westpac is yet to officially revise its forecast but it estimates the plant and equipment number, which was boosted by government taxation initiatives, will add around 0.9 percentage points to GDP for the quarter. This implies upside risk to the bank's growth forecasts of 0.6% for the quarter and 2.0% for the year.
Capex intentions are also trending higher, today's data showing the 2009/10 outlook is now for total capex of around $110.6 billion, Westac pointing out while this is a relatively flat outcome compared to 2008/09 it is a rise in real investment given prices have fallen since last year.
The first estimate for capex in 2010/11 is now $101.4 billion, which as ANZ's Lee notes is 15% higher than was the first estimate for FY09. With business confidence rising in the second half of 2009 he expects increased traction with respect to investment plans as the year progresses, though he suggests the high confidence levels are probably not yet feeding into sustained growth in spending by the business sector.
According to Lee the pick up in business investment evidenced by today's numbers will add some near-term pressure on resources, which implies labour constraints could soon emerge and so put some upward pressure on inflation.
This will probably require a near-term increase in the cash rate by the Reserve Bank of Australia (RBA) in his view, possibly at the March meeting. Westpac agrees, taking the view today's numbers strengthen the case for a tightening by the RBA next month.
The market appears to be reading the data the same way as Westpac notes the Australian dollar spiked higher on the numbers.