SYDNEY (Reuters) – Australia’s decade-long boom in mining investment is not slowing nearly as quickly as many feared, while other sectors are beefing up spending at a rate that should greatly ease concerns about the economic outlook.
A closely-watched report from the Australian Bureau of Statistics out on Thursday showed businesses had upgraded their spending plans for 2013/14 well above expectations, with even once-laggard industries grasping the spending nettle.
That will be a huge relief to the Reserve Bank of Australia (RBA) which has been betting the farm on investment spreading outside of just mining.
“It’s consistent with other sectors starting to take over as drivers of the economy as the mining sector slows,” said Shane Oliver, chief economist at AMP Capital Investors.
“In a year’s time, we’re probably looking at growth heading back to around 3 percent, which is more optimistic that what the RBA was expressing,” he added. “Ultimately, it would also be consistent with it leaving rates on hold ahead of a possible rate hike sometime around September or October next year.”
The strength of the data saw the market price out almost any chance of another cut in interest rates, following the RBA’s last easing to 2.5 percent back in August. It also lifted the local dollar a third of a U.S. cent.
The survey of planned spending for the year to June 2014 came in at A$166.8 billion ($152 billion), up from a revised A$161.6 billion and at the very top end of expectations.
Planned spending by miners was still likely to dip over the year but by much less than previously assumed, while manufacturing and other industries lifted their outlook.
That is a critical shift since mining investment has been the main driver of economic growth in the last few years, reaching a massive 8 percent of Australia’s A$1.5 trillion in annual gross domestic product (GDP).
For the third quarter alone the ABS reported capital expenditure jumped 3.6 percent to A$40.9 billion, again confounding forecasts of a drop of 1.2 percent.
OUTPUT BOOM STILL YOUNG
Having got so high, mining spending had to slow at some point. The government’s Bureau of Resources and Energy Economics (BREE) estimates the value of projects in an advanced stage had fallen by A$28 billion in the past six months to A$240 billion.
Reasons for the slowdown included rising costs, a still-high local dollar and the fact that a lot of new supply is already coming on stream around the globe.
Yet BREE also emphasized that the boom in resource output from all this investment had a lot longer to run.
“The increase in iron ore production capacity achieved by Fortescue Metals Group (FMG.AX ) completing its expansion projects over the past 12 months is, by itself, larger than the annual iron ore exports of any country other than Australia and Brazil in 2012,” the agency noted by example.
The output from liquefied natural gas projects, while expanding rapidly, will not truly take off until 2015 when it will make Australia the world’s largest exporter of the energy.
Much of this output is headed for China, which has a seemingly inexhaustible appetite for resources. In the third quarter alone, Australian exports to the Asian giant were up no less than 50 percent on the same period last year, with much of that being iron ore.
And since the volume of imports fell by over 2 percent in the third quarter, it is likely trade will have made a sizable contribution to economic growth.
Analysts generally expect Australia’s GDP rose by around 0.6 percent in the third quarter, putting it 2.4 percent up on the same period last year. The data is due out on December 4.
(Editing by Eric Meijer)
0 comments
Share
