Business investment in Australia in Q3 declines, outlook surprisingly resilient

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People walk through the Central Business District (CBD) at dusk in Sydney, Australia on June 4, 2021. REUTERS / Loren Elliott

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  • Capex -2.2% q / q in Q3 vs forecast of -2.0%
  • Spending plans for 2021/22 exceed expectations at A $ 138.6 billion
  • Third quarter GDP expected to contract, but recovery is underway as economy reopens

SYDNEY, Nov. 25 (Reuters) – Australian business investment fell in the third quarter as pandemic shutdowns shut down many businesses, although future spending plans have proven surprisingly resilient and a rapid recovery is now expected that most of the restrictions have been lifted.

Figures from the Australian Bureau of Statistics released on Thursday showed capital spending fell 2.2% in real terms in the third quarter to A $ 32.7 billion ($ 23.57 billion), in line with forecasts by the market down 2.0%.

Spending plans for the year ending June 2022 have been raised to A $ 138.6 billion, above most analysts’ estimates and a sign that business confidence has weathered the disruption well.

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“This suggests that spending for this fiscal year will be more than 10% higher than in fiscal 2021, significantly exceeding levels seen in the three years leading up to the pandemic,” said Sarah Hunter, chief economist at BIS Oxford. Economics.

“Construction, wholesale and transportation, post and warehousing have led the way, reflecting the need for increased capacity to properly service the substantial transition to online retail. “

For the third quarter, most of the decline in investment came in factories and machinery, with the retail and education sectors particularly hit by the lockdowns.

Gross domestic product (GDP) data due next week should show a sharp contraction as stay-at-home rules in Sydney and Melbourne hammered consumption in the quarter.

Yet, with 86% of the adult population fully vaccinated, most restrictions have been lifted and spending has risen rapidly as retailers count on an exceptional Black Friday in sales this week.

Separate wage data released Thursday showed employment rose sharply in the last two weeks of October, ending a strong month for the states of New South Wales and Victoria.

This employment recovery has yet to see a sharp acceleration in wage growth, which stagnated at an annual rate of 2.2% in the third quarter, well below consumer price inflation in the United States. 3%.

It’s too slow for the Reserve Bank of Australia (RBA), which wants to see wage growth above 3% before pulling the trigger on rate hikes, which it doubts will happen until in 2023 at the earliest.

Investors are betting that the bank is behind the inflation curve and will actually have to hike the policy rate 0.1% by June of next year, if only to keep up with the trends. other central banks.

The Reserve Bank of New Zealand (RBNZ) on Wednesday raised its rate for the second month in a row and announced further hikes to 1.5% by mid-2022. Read more

($ 1 = 1.3881 Australian dollar)

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Reporting by Wayne Cole; Editing by Himani Sarkar and Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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