Australian Investment Projects Drop for First Time Since 2004

By Gemma Daley

Feb. 2 (Bloomberg) -- Planned investment in Australia dropped for the first time in four years as mining companies scaled back production because of the global economic slowdown, Access Economics said.

The total value of planned investment projects fell 5.8 percent to A$607.2 billion ($392 billion) in the fourth quarter from A$644.4 billion in the previous three months, according to a report by the Canberra-based research company.

Shrinking investment adds to signs the nation is headed for its first recession since 1991 and increases pressure on the central bank to lower interest rates as much as 1 percentage point tomorrow. Miners BHP Billiton Ltd. and Rio Tinto Group are among companies that are cutting spending and firing workers in Australia as worldwide demand for commodities falters.

“The downturn will affect most parts of the Australian economy, with business investment no exception,” Access Economics said in the report e-mailed to Bloomberg. “Project deferrals are starting to mount up.”

It was the first drop in Access’s measure of planned investment since the fourth quarter of 2004, and the biggest decline since the company began keeping records in 2001.

The indicator includes both government and corporate investment and covers more than 2,600 projects, each worth at least A$5 million, that are under construction or in planning across the nation.

Plans Shelved

Projects that have been shelved over the past few months include Royal Dutch Shell Plc and Anglo American Plc delaying a A$5 billion development in Victoria state to convert coal to clean fuels. Alcoa Inc. suspended in November the planned expansion of its Wagerup alumina refinery in Western Australia because of weaker demand.

“We expect more such announcements over the coming months,” Access said. “The result is likely to be a sharp fall in business investment over the next couple of years.”

BHP Billiton closed the $2.2 billion Ravensthorpe nickel mine in Western Australia because of declining prices.

Lending to the nation’s businesses tumbled 1.1 percent in December from the previous month, the biggest drop since 1992, the central bank reported last week. The jobless rate climbed to a two-year high of 4.5 percent in December.

All 20 economists surveyed by Bloomberg News expect the central bank will cut borrowing costs by at least three-quarters of a percentage point tomorrow. About half of those predict a 1 point reduction in the benchmark rate to 3.25 percent.

To contact the reporter on this story: Gemma Daley in Canberra at gdaley@bloomberg.net