Non-mining investment picking up pace

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Business investment is surprisingly strong across all of the sectors of the economy, which may mean there won’t be a central bank interest rate cut in the coming months.

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Business investment rose by 3.6 per cent in the September quarter, Australian Bureau of Statistics official figures show, better than the 1.2 per cent fall the market was expecting.

Capital expenditure in mining sector rose four per cent, manufacturing was up 2.5 per cent and the “other selected sectors” category gained 3.1 per cent.

“For the mining sector, manufacturing and the services sector things were probably as good as you could hope and maybe a little bit stronger than three months ago,” Macquarie Bank senior economist Brian Redican said.

“We have seen an improvement in business confidence and that seems to have underpinned the investment outlook.”

Mr Redican said the Reserve Bank of Australia (RBA) likely would wait for the next capital expenditure data release before deciding whether to cut the cash rate.

“The Reserve Bank did downgrade its investment outlook in November, so after these numbers they won’t be further downgrading the numbers,” he said.

“The key test for the Reserve Bank will come in February when we get the first estimate for planned (business) spending for 2014/15. I think that will be far more influential in terms of the interest rate outlook.”

RBC fixed income and currency strategist Michael Turner said the pickup in non-mining investment was encouraging, as it would be needed when mining investment eventually falls.

“The non-mining components will provide the RBA an opportunity to assert that there are signs of non-mining investment picking up – albeit slowly,” he said.

“The more recent fall in the exchange rate is also likely to provide some reason for optimism on this front.”

Mr Turner said he was reluctant to believe mining investment was rising and maintained his forecast of a cash rate cut in the second quarter of 2014.

Commonwealth Bank economist Diana Mousina said business investment was still in good shape and a fall in mining and resources spending was still a way off.

“We’re seeing this peak in mining investment but the peak is not kind of falling off the cliff as some had been anticipating,” she said.

“It’s really showing that this peak in mining investment is more of a plateau and that really means you’re going to have more time for the non-mining economy to make a stronger contribution to growth.”

The closely-watched figures from the Australian Bureau of Statistics cover investment in capital goods which includes things like buildings and equipment.

The fourth estimate for capital expenditure in 2013/14 is $166.832 billion, which is two per cent lower than investment in 2012/13.

AAP jcc/cdh

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