Is Australias Economy Sinking or Swimming?: WSJ Australias mining investment boom is not misfiring as badly as many thought, raising questions about whether the Aussie economy is really the laggard it has been made out to be. Government data Thursday showed firms plan to invest 167 billion Australian dollars (US$152 billion) in the year ending June 30, up from an estimate three months ago of 162 billion Australian dollars. Actual investment rose 3.6% in the third quarter from the second quarter, easily beating economists consensus of a 1.2% decline. The investment gains were broadly based, and even mining investment -- the subject lately of so much hand-wringing -- rose 4.0%. The data prompted an immediate rally in the Australian dollar and a rethink about the economy, which is said to be struggling through a difficult transition where mining investment is ceasing to power strong economic growth. To make up for the expected weakness, policymakers have sought to boost sectors such as manufacturing, services and tourism. The outlook has actually improved over the last three months, and most importantly there are signs of an improvement in non-mining investment, said Shane Oliver, chief economist at AMP Capital. This adds to signs already evident from housing indicators and consumer and business confidence that interest rate cuts are getting traction and that the economic outlook in Australia is starting to brighten. Mining investment has enjoyed a decade-long boom, powering Australias economy to strong growth. But with economic growth slowing in China -- the main destination for Australian mineral exports -- and commodity prices falling, miners have slashed staff and mothballed projects. The assumption that mining investment was fading underpinned the Reserve Bank of Australias decision to downgrade its economic outlook earlier this month. The RBA lowered its 2014 growth estimate for to 2%-3%, from an August forecast of 2.5%-3.5%. Based on company statements and the banks liaison, mining investment looks like it might decline more than was previously anticipated, the RBA said in its quarterly policy statement. So is the RBA wrong? Or do Thursdays data provide an erroneous read on the direction of investment? To formulate its assessment, the RBA appears to rely far more on its own liaison work with businesses than on government data. And to be sure, other data do support the banks downbeat position. Most notably, a Wednesday report from the Bureau of Resources and Energy Economics (known as Bree) showed a sharp fall in the number of planned mining investment projects. At the end of October, companies had committed to 63 mining and energy projects worth a combined 240 billion Australian dollars, Bree said. That was down from 73 projects worth A$268 billion six months earlier. Kieran Davies, chief economist at Barclays Australia, said the various data sets were hard to square. In recent quarters, government investment data have been pointing to investment declines of more than 10% for the year to June 30. Now it forecasts a largely flat course. At this stage we are inclined to downplay the official data because it jars with the weaker outlook suggested by Bree, Davies said. Since the Liberal-National coalition government won power in early September, business confidence has improved markedly, which might also account for some of the better-than-expected investment data. The price of iron ore also has stayed high, though miners say theyre using the revenue to pay down debt rather than invest in new projects. The RBA needs to disentangle the truth. At the very least, the official investment data should rule out any interest-rate cut at the RBAs next policy board meeting Dec. 3.
Posted on: Thu, 28 Nov 2013 09:30:00 +0000
Trending Topics
Recently Viewed Topics
© 2015