Australia Q2 business investment slips, outlook still upbeat


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SYDNEY — Australian business investment dipped in the June quarter as torrential rain and surging costs hit building work, though firms stuck with upbeat plans for spending in the year ahead.

Data from the Australian Bureau of Statistics out on Thursday showed private capital spending eased a real 0.3% in the June quarter, from the previous quarter, missing forecasts of a 1.5% increase.

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Yet firms upgraded spending plans for the year to June 2023 to a solid A$146.4 billion ($99.68 billion), up almost 12% on the previous estimate and in line with analyst expectations.

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The mixed data are unlikely to deter the Reserve Bank of Australia (RBA) from hiking interest rates for a fifth straight month next week as it battles sky-high inflation.

The cash rate has already risen 175 basis points to 1.85% and markets are wagering on a further half-point move to 2.35% at the Sept. 6 policy meeting.

Futures imply rates could peak as high as 3.85%, in part because central banks in the United States and Europe have been sounding super-hawkish on policy recently.

A sustained pick up in business investment could help restrain inflation over time by boosting productivity and the June quarter numbers had some promising news with spending on plant and machinery climbing 2.1%.

That was offset by a 2.5% drop in building as bad weather and supply shortages sapped activity, particularly in housing where building costs rose at the fastest pace in 32 years.

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The drop in construction likely took around 0.3 percentage points out of gross domestic product (GDP) in the quarter, figures for which are due next week.

The outlook for housing has also been darkened by rising mortgage rates and a sharp reversal in prices, which suffered their largest monthly fall in almost 40 years in August.

Figures from property consultant CoreLogic out on Thursday showed prices nationally sank 1.6% in July from June, led by a 2.3% dive in Sydney. Annual price growth slowed to 4.7%, from a top above 21% late last year.

ABS data showed new home loans dived 8.5% in July, though they remain well above pre-pandemic levels.

A sustained downturn in prices would be a big blow to consumer wealth given the notional value of Australia’s 10.8 million homes is estimated at A$10.2 trillion.

“The trend is now firmly established and we expect the monthly pace of falls to further accelerate as the RBA continues to raise rates,” warned Gareth Aird, head of Australian economics at CBA.

He expects values to fall 15% from their peak, but only if the RBA stops hiking rates at 2.6%. A tightening in line with market wagers, would cause a far larger shock.

($1 = 1.4686 Australian dollars) (Reporting by Wayne Cole; Editing by Christian Schmollinger and Sam Holmes)


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