* Capital spending falls 5.2 pct in Q4, well below forecasts
* First estimate for spending in 2014/15 was soft at A$125
* Disappointing report drags down local dollar, rates to
By Wayne Cole
SYDNEY, Feb 27 Australian business investment
unexpectedly sank by the most in over four years last quarter
and spending plans for 2014/15 heralded a deeper slowdown ahead,
a blow to the economic outlook that sent the local dollar
The disappointing report came as Australia's iconic airline
Qantas Airways announced plans to cut 5,000 jobs over
the next three years to help it withstand fierce competition.
That was just the latest high-profile company to announce
job shedding and will deal another blow to consumer confidence.
The weakness in business spending was particularly worrying
as the Reserve Bank of Australia (RBA) has been counting on a
revival in investment outside of mining to backstop the
"It does underscore the impending hole in growth from the
drag in mining-related capex that will come through over the
next 12 to 18 months," said Su-Lin Ong, senior economist at RBC
"What it's also telling you is that the expected pick-up in
non-mining investment is pretty glacial."
Thursday's survey from the Australian Bureau of Statistics'
showed firms planned to spend A$125 billion in the year to June
2015, less than the A$135 billion many analysts had hoped for.
Mining investment was cut back hard as more projects are set
to be completed, while a surfeit of global supply in many
resources has discouraged further expansion.
That's important as mining investment has swelled massively
in recent years to reach almost 8 percent of Australia's A$1.5
trillion in annual gross domestic product (GDP).
The market reaction was immediate with the local dollar
sliding half a U.S. cent to as low as $0.8916, while
interbank futures <0#YIB:> narrowed the odds of another cut in
rates albeit not until later in the year.
It was only at the start of this month that the RBA had said
rates were likely to stay at 2.5 percent for some time amid
strength in housing and consumption and a pick-up in inflation.
A DRAG ON GROWTH
Thursday's report also contained bad news about recent
growth with capital expenditure falling 5.2 percent in the last
quarter of 2013, well under forecasts of a flat outcome.
The pullback by miners was all too evident as they slashed
spending on plant and machinery by 16 percent compared to the
All of which implied private investment took a chunk out of
economic growth in the fourth quarter and suggested some
downside risk to GDP data due out on March 5. Analysts had
generally expected annual growth would tick up to around 2.6
percent, but those forecasts may be shaved now.
Still, the news was not all bad. Spending plans for the
current fiscal year to June 2014 held up very well, even among
miners, while other industries marked up their outlook.
Much of the plant and machinery being cut were also imports,
which should help Australia's trade account.
And all the hundreds of billions already spent on resource
investment is in turn boosting export volumes in everything from
iron ore to coal to liquefied natural gas.
A lot of this output is headed for China, which has a
seemingly inexhaustible appetite for resources. Goods exports to
China hit a record A$27.2 billion in the fourth quarter of last
year, an increase of 45 percent on the same period in 2012.
As a result, net exports were likely the biggest contributor
to economic growth last quarter and should stay so for some time
(Reporting by Wayne Cole; Editing by John Mair)