By Wayne Cole
SYDNEY (Reuters) – Australian business investment rose to a seven-year high in the December quarter helped by a jump in spending on retail and accommodation, while firms also had an upbeat outlook for 2023/24.
Data from the Australian Bureau of Statistics on Thursday showed private capital spending climbed a real 2.2% in the fourth quarter, beating forecasts of a 1.3% increase. Spending of A$35 billion ($23.9 billion) was the highest since early 2016.
Firms plan to invest around A$159 billion for the current year to June, while first estimate for 2023/24 came in at A$129.7 billion, on the high side of forecasts.
These very early predictions tend to be conservative and get revised up by firms over time.
For the December quarter alone, investment by Australia’s huge mining sector bounced 0.7% after a soft September quarter, with spending by the rest of industry increasing 2.8%.
The rise will feed into data on gross domestic product (GDP) due next week where forecasts are clustered around growth of 0.8%, led mainly by strength in international trade and consumer spending on services.
This would leave annual growth at a healthy 2.7%, though that is expected to slow markedly this year as high interest rates and falling house prices eat into spending power.
The Reserve Bank of Australia (RBA) has hiked rates by a wallet-busting 325 basis points since May and is warning further increases will be needed to get a grip on inflation.
Markets wager the current cash rate of 3.35% could peak as high as 4.10% or 4.35%, though the upside risk was tempered a little by a surprisingly soft report on wages.
“It was a ‘goldilocks’ report that indicates wages pressures are neither too cold nor too hot,” said Gareth Aird, chief economist at CBA.
“The RBA does not need to generate a meaningful lift in the unemployment rate to bring inflation down given wages growth is consistent with the inflation target,” he added, and expects rates to top out at 3.85%
($1 = 1.4665 Australian dollars)
(Reporting by Wayne Cole; Editing by Stephen Coates)
