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Business investment improves, but outlook disappoints

Business investment stopped contracting in the December quarter but plans for capital expenditure next financial year have fallen short of expectations.
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The Australian Bureau of Statistics said on Thursday that private sector December-quarter investment in buildings, equipment, plant and machinery rose 0.8 per cent, seasonally adjusted, from the previous three months, leaving it down 16.4 per cent year-on-year.

Growth was better than expectations, with the average estimate from a Bloomberg survey of economists a 3 per cent decline.

Investment in resources-related machinery and infrastructure, which has fallen off sharply over the past two years, dropped just 0.9 per cent quarter-on-quarter, suggesting it is close to bottoming out.

Manufacturing, however, was down 3.6 per cent on the quarter, and other industries – including services – were up 3.1 per cent on the September quarter.

The Australian dollar slipped as analysts and traders focused more on the gloomy first estimate from businesses of planned investment in the 2016-17 financial year.

This came in at $82.6 billion, $10 billion short of economists’ expectations, and $20 billion below the corresponding first estimate for ths current financial year.

The fifth estimate for this financial year was also slightly below the fourth.

Capital Economics senior economist Daniel Martin said future capital expenditure estimates were “concerning”.

“Overall, [Thursday’s] capex figures suggest that while current investment appears to be stronger than we’d previously thought, the outlook is weaker,” he said.

“This will be worrying for the RBA and could prompt the RBA to cut rates again soon.”

The ABS calculated that businesses spent almost $32 billion on buildings, equipment, plant and machinery in the three months to the end of December last year. Of this, $20.4 billion went on buildings and structures, with the rest invested in equipment, plant and machinery.

Nomura rate strategist for Australia Andrew Ticehurst noted that plant and equipment spending, which climbed just 0.1 per cent, is the only component which feeds directly into fourth-quarter gross domestic product figures, published next week.

Estimated spending plans also pointed to weak business activity this year, he said.

“There is no sign here of a pick-up in non-mining investment intentions, with capex spending in manufacturing and other industries looking set to fall in 2016-17,” he said.

“[Thursday’s] data does support our ongoing assessment that a lower cash rate will be required in 2016, and we continue to forecast a 25bp rate cut in May.”

This story Administrator ready to work first appeared on Nanjing Night Net.

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