SYDNEY: Australian business investment dipped unexpectedly in the third quarter as miners cut back on new equipment, though firms affirmed plans for solid spending in the year ahead.
Data from the Australian Bureau of Statistics yesterday showed private capital spending fell a real 0.6% in the September quarter from the previous quarter, missing forecasts of a 1.5% increase.
Firms did, however, upgrade spending plans for the year to June 2023 to A$155.7bil (US$105.9bil or RM468bil), up 5.6% on the previous estimate and in line with analyst expectations.
A sustained pick up in business investment could help restrain inflation over time by boosting productivity.
The slightly disappointing report still left analysts expecting gross domestic product data out next week would show another robust rise of around 0.8% in the third quarter.
That would see annual growth spike to 6.3%, from 3.6%, though mainly due to a huge one-off boom late last year as the economy re-opened from pandemic lockdowns.
The economy’s resilience suggests the Reserve Bank of Australia (RBA) will likely hike interest rates for an eighth straight month next week as it tries to rein in inflation.
The cash rate has already risen 275 basis points to 2.85% and markets are wagering on a further quarter-point move to 3.10% at the Dec 6 policy meeting.
The tightening trend will then pause for a bit as the RBA board does not meet again until early February, and investors suspect there might only be a couple more hikes left to do.
Futures have recently scaled back the expected peak for rates to just 3.6%, when a month ago it was above 4%.
The dovish shift was encouraged by a surprisingly subdued reading on consumer prices for October, which showed inflation slowing to 6.9%.
“The data suggest that inflationary pressure remains high, but had eased, and seems to be passed its peak,” said Paul Bloxham, head of Australian economics at HSBC.
“We expect the RBA to hike to 3.10% next week, but may choose to pause not long after that.”
Markets got an added nudge overnight when Federal Reserve chair Jerome Powell confirmed the pace of US hikes would slow, sparking a major rally in bonds and equities.
That saw Australian three-year bond yields dive 13 basis points to a near-three month low of 3.065%, implying they would be lower than the overnight cash rate should the RBA hike as expected next week. — Reuters