Australian Company Investment Rose More Than Forecast

By Jacob Greber

Aug. 28 (Bloomberg) -- Australian business investment rose more than economists forecast in the second quarter as mining companies spent extra on machinery and equipment to meet demand from China.

Capital spending rose 5.7 percent from the previous three months, when it gained a revised 1 percent, the Bureau of Statistics said in Sydney today. The median estimate of 23 economists surveyed by Bloomberg News was for a 2 percent gain.

Increased investment 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.

``With retail looking sluggish, growth is increasingly reliant on strong business investment,'' Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today's report.

The Australian dollar climbed to 86.45 U.S. cents at 11:37 a.m. in Sydney from 86.05 cents before the report was released. The two-year bond yield rose 2 basis points to 5.70 percent. A basis point is 0.01 percentage point.

Spending on buildings and structures fell 0.5 percent and company investment in the new plant and equipment advanced 8 percent in the second quarter, today's report showed.

Investment Outlook

Companies forecast investment of A$99.8 billion ($86 billion) in the year ending June 30, 2009, which is 14.5 percent more than the estimated three months earlier and 26 percent greater than the corresponding estimate last year.

Export income is forecast by the central bank to rise 20 percent this year after mining companies including Rio Tinto negotiated a price increase of as much as 97 percent for iron ore destined for China.

Still, the Reserve Bank of Australia 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.

Australia's $1 trillion economy expanded at the weakest pace in almost two years in the three months through March and growth will 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.

Stocks Slump

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.

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.

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.

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