Business investment rebounds in an otherwise cooling economy
Business appears to have shrugged off the impact of a cooling economy with a stronger-than-expected surge in investment towards the end of last year.
Private sector capital investment, or capex, for the three months to the end of the year rose by 2 per cent, a solid rebound from a disappointing fall in the third quarter.
The solid outcome is one of the brighter bits of economic news lately, after weak construction, retail and wages figures recently.
The slowing construction sector will be buoyed by a fresh pipeline of work, with investment in building and structures up 3.2 per cent in the December quarter, despite the mining construction boom continuing to wind down.
Investment in the important equipment, plant and machinery sector — which feeds directly into next week’s GDP data — also edged up, albeit at a slower pace than previous surveys, while manufacturers cut their overall investment.
However, NAB’s Kaixin Owyong said the stronger-than-expected headline figure masks weakness in equipment investment.
“For fourth quarter GDP, the slight 0.7 per cent quarter-on-quarter increase in equipment, plant and machinery capex means virtually no contribution from this component to GDP,” Ms Owyong said.
Coming on top of yesterday’s weak construction figures, the equipment result does not bode well for a strong fourth quarter GDP result when it is released next week.
“These data taken together suggest that private investment growth was likely weaker-than-anticipated in Q4 and suggests downside risk to our 0.4 per cent quarter-on-quarter [2.6 per cent year-on-year] forecast for GDP,” Ms Owyong said.
However, there was more positive sentiment in future investment plans in the Australian Bureau of Statistics survey’s first estimate of spending in the 2019/20 financial year.
Businesses across the board said they planned investment of $92.1 billion next year, 11 per cent higher than the first estimate for 2018/19.
While the expected capex figures were much as expected, and will be viewed as “neutral” by many economists, it at least was better than recent falling business confidence surveys suggested.