Australias Business Investment Rebounds on China (Update3)
By Jacob Greber
Feb. 28 (Bloomberg) — Australian business investment
rebounded in the fourth quarter, after falling the most in eight
years, as mining companies such as Rio Tinto Group expanded to
meet Chinese demand for iron ore.
Capital spending rose 5.1 percent from the third quarter,
when it fell a revised 6.2 percent, the Bureau of Statistics
said in Sydney today. That beat the median estimate of 20
economists surveyed by Bloomberg News for a 3.1 percent gain.
Demand from China for natural resources has prompted mining
companies such as Rio Tinto and BHP Billiton Ltd. to expand
mines and fix port and railway bottlenecks. Rising investment
will fuel the nations economic expansion, now in its 17th year,
and add to pressure on the central bank to raise borrowing costs
amid the fastest inflation since 1991.
“This is good news for the economy given we were expecting
the investment cycle to flatten out late in 2008, said Helen
Kevans, an economist at JPMorgan Chase %26amp; Co. in Sydney. “The
domestic case for further tightening by the central bank
“definitely remains very strong, she said.
The Australian dollar traded at 94.17 U.S. cents, the
highest level in almost 24 years, at 4:35 p.m. in Sydney from
94.25 cents immediately before the report. The yield on the
five-year government bond fell 3 basis points, or 0.03
percentage point, to 6.75 percent.
Spending on buildings and structures rose 5.1. percent and
company investment in new plant and equipment gained 3.8 percent
in the fourth quarter, todays report showed.
Spending Plans
Companies forecast investment of A$84.8 billion ($80
billion) in the year ending June 30, which was 0.7 percent more
than they estimated three months ago.
They plan A$78.5 billion of new investment in the year
ending June 30, 2009, which is 23.6 percent more than they
estimated for the previous fiscal year.
“The high levels of business investment now under way will
undoubtedly assist in alleviating bottlenecks over time and
hence adding to the growth of the economys productive
potential, the Reserve Bank of Australia said in its quarterly
monetary policy statement on Feb. 11.
Concern that a shortage of skilled workers, as well as
constraints at ports and railways, are driving up prices was a
key reason the Reserve Bank increased borrowing costs this month
by a quarter point to an 11-year high of 7 percent, and signaled
it may raise the benchmark rate again next week.
Iron-Ore Output
Rio Tinto, the worlds second-largest iron-ore producer,
last month completed a $1.4 billion expansion of Dampier Port in
Western Australia, lifting the ports iron-ore capacity by 90
percent.
“We see strong demand from China for everything that we
sell, Rio Tinto Chief Executive Officer Tom Albanese said in
an interview in Chicago on Feb. 22. The company said this month
that its seeking bigger price gains for iron ore from Asian
steelmakers than Brazilian rival Cia. Vale do Rio Doce, which
won an increase on Feb. 18 of at least 65 percent.
Gross domestic product expanded at the quickest annual pace
in more than three years in the third quarter as consumer
spending surged and exports rose. The government will publish
its fourth-quarter growth report on March 5.
Faster growth has driven unemployment to the lowest in more
than three decades and pushed the inflation rate beyond the
central banks target range of between 2 percent and 3 percent.
Demand `Too Strong
Reserve Bank policy makers, headed by Governor Glenn
Stevens, considered raising the benchmark rate by 50 basis
points for the first time in eight years and said the decision
to increase by 25 points was “finely balanced, according to
minutes from its Feb. 5 meeting. It next reviews borrowing costs
on March 4.
Todays report “is pretty strong, said Shane Oliver,
chief economist at AMP Capital Investors in Sydney. “This is
another sign that demand is too strong, so it adds to the case
for another rate increase.
Companies have boosted spending even amid higher interest
rates and signs the U.S. housing recession will cause global
growth to slow, todays report shows.
Mining companies increasing investment on buildings and
structures by 4.2 percent and manufacturers added 1.5 percent.
Miners also spent 9.1 percent more on equipment, plant and
machinery, while manufacturers increased equipment outlays by
11.3 percent in the quarter.
“This data makes a very strong statement about the
underlying strength and confidence of Australias business
community, said Mark Rodrigues, a senior economist at
Australia %26amp; New Zealand Banking Group Ltd. in Melbourne.
“Investment plans do not appear to have been dented by the
less benign funding environment of recent months or the
increasingly gloomy outlook for the global economy.
To contact the reporter for this story:
Jacob Greber in Sydney at
