Mining boosts Australia business investment to 8-year high, outlook upbeat

By Wayne Cole

SYDNEY (Reuters) – Australian business investment rose to an eight-year high in the September quarter thanks to a rebound in mining, while plans for future spending were upgraded in a much-needed boost for economic growth.

Data from the Australian Bureau of Statistics on Thursday showed private capital spending rose a real 0.6% in the third quarter from the previous quarter, led by a 5.6% increase in the mining sector.

Total spending of A$39.9 billion ($26.43 billion) was the highest since late 2015 and almost 11% higher than a year earlier, encouraged in part by tax breaks on new equipment.

Firms also lifted spending plans for the fiscal year to June 2024 to A$171.2 billion, up 8.5% on the previous quarter and just pipping analyst forecasts for $169 billion.

“The information media and telecommunications industry had a particularly large rise based on planned investment in new data centres,” noted Robert Ewing, ABS head of business statistics.

“The mining industry also raised its spending on iron-ore projects and battery-related mineral developments.”

That follows data showing surprisingly strong construction work for the third quarter, which also contained big upward revisions that left spending up more than 12% for the year.

Much of those gains came from a government splurge on infrastructure, which has become so large the IMF recently recommended some projects should be delayed to prevent costs blowing out and adding to inflation.

Demand running ahead of supply has become a real challenge with the Reserve Bank of Australia (RBA) citing it as a major reason inflation is proving more stubborn than hoped.

The central bank responded by lifting interest rates to a 12-year high of 4.35% this month and another move will likely be on the agenda at its last policy meeting of the year on Dec. 5.

Analysts doubt it will hike again so quickly, in part because October inflation figures surprised on the low side.

Markets have also pared back the risk of a rise next year, though they also imply little chance of a rate cut either.

One sticking point for the RBA has been a surprisingly rapid revival in home prices which has boosted household wealth and stoked spending power even as the central bank is trying to put a lid on consumption.

Again, demand is far outstripping supply as record inward migration meets a dearth of suitable accommodation.

Figures on home building out on Thursday showed a welcome 7.5% bounce in approvals for new dwellings, but that was still down more than 6% on a year earlier and well short of the pace needed to meet population growth.

($1 = 1.5110 Australian dollars)

(Reporting by Wayne Cole; Editing by Kim Coghill and Sonali Paul)