Australian Business Investment Probably Rose 2%, Survey Shows

By Jacob Greber

Aug. 27 (Bloomberg) -- Australian business investment probably rose as miners including Rio Tinto Group expanded to meet Chinese demand for iron ore, offsetting a slide in spending by companies that rely on domestic spending.

Capital spending rose 2 percent in the three months to June 30 after falling 2.5 percent in first quarter, according to the median estimate of 23 economists surveyed by Bloomberg. Forecasts ranged from a gain of 6 percent to a 3.9 percent drop. The report will be released tomorrow at 11:30 a.m. in Sydney.

A mining boom is helping offset weaker consumer spending that will probably prompt the central bank to cut borrowing costs next week for the first time in seven years. Spending may cool after business confidence in July held at the lowest level since 2001, stock markets tumbled and sales growth slowed at retailers such as Harvey Norman Holdings Ltd.

``We expect the strength in business investment will continue to be concentrated in the mining sector,'' said Kieran Davies, chief economist at ABN Amro Australia Ltd. in Sydney.

Export income is forecast to surge after mining companies including Rio Tinto negotiated a price increase of as much as 97 percent for iron ore destined for China.

``The Reserve Bank will watch the investment figures closely to monitor the extent to which tighter credit conditions have affected the outlook for investment spending in the year ahead,'' Davies said.

The central bank may soon cut interest rates to avoid a ``deeper and more persistent'' economic slowdown, policy makers said in the minutes of their Aug. 5 meeting, released last week.

Economy Slows

Australia's $1 trillion economy expanded at the weakest pace in almost two years in the three months through March and growth is forecast to remain ``low'' in the second and third quarters, the central bank said last week. Figures for economic growth in the second quarter will be released on Sept. 3.

The economy is slowing as consumers cut spending to offset the highest borrowing costs in 12 years and a surge in gasoline prices, forcing companies including Qantas Airways Ltd. and Ford Motor Co. to fire workers.

The nation's All Ordinaries Index of stocks has tumbled 21 percent this year.

``Whilst we expect business investment plans to remain positive, the rate of growth will likely moderate over the course of the year as the high cost of debt and a slowing domestic economy weigh further on business sentiment,'' said Richard Gibbs, chief economist at Macquarie Group Ltd. in Sydney.

A survey of more than 400 companies by National Australia Bank Ltd., published on Aug. 12, showed business confidence in July held at the lowest level since the 2001 terrorist attacks in the U.S.

Bloomberg Survey

Investors forecast a 100 percent chance that central bank Governor Glenn Stevens will cut the benchmark lending rate to 7 percent from 7.25 percent on Sept. 2, according to a Credit Suisse Group index based on trading in interest-rate swaps.

Policy makers last raised interest rates in March, adding to increases in February, November and last August.

The following table gives economists' estimates of the change in business capital expenditure in the second quarter from the previous three months:

                                   QoQ
                                  Change
         -------------------------------------
         Median                   2.0%
         Average                  1.9%
         High forecast            6.0%
         Low forecast            -3.9%
         No. of forecasts          23
         -------------------------------------
         4Cast Ltd.               6.0%
         AMP Capital              2.0%
         ANZ Banking Group        1.5%
         Ausbil Dexia            -0.1%
         Barclays                -3.9%
         BT Financial             1.0%
         Citigroup                1.0%
         Commonwealth Bank        4.0%
         Goldman Sachs            2.0%
         ICAP Australia           3.0%
         JPMorgan Chase           4.0%
         Lehman Brothers          4.0%
         Merrill Lynch            5.0%
         Macquarie                3.0%
         National Australia Bank  2.0%
         Nomura                   2.0%
         RBC Capital Markets     -1.0%
         St. George Bank          4.0%
         Suncorp Banking          2.0%
         TD Securities           -1.6%
         Reuters IFR              1.0%
         UBS                      1.0%
         Westpac Bank             2.0%
         =====================================

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net