August 31, 2017 / 3:28 AM / in a year

Australia businesses boost spending plans in long-awaited revival

SYDNEY (Reuters) - Australian business investment rose in the second quarter while companies upgraded their spending plans for the year ahead, reflecting a long-awaited and much-needed revival outside of mining.

A crane can be seen on a construction site next to other buildings in the central business district (CBD) of Sydney, Australia August 30, 2017. REUTERS/David Gray

Investment grew a seasonally adjusted 0.8 percent in April-June to nearly A$28.3 billion ($22.37 billion), data from the Australian Bureau of Statistics (ABS) showed on Thursday, beating expectations of a 0.3 percent gain.

Importantly, spending on equipment, plant and machinery climbed 2.7 percent and should add directly to economic growth in the second quarter.

Figures due next week are likely to show Australia’s A$1.7 trillion gross domestic product (GDP) expanded by around 0.7 percent, up from a sluggish 0.3 percent in the first quarter.

“The data shows finally a more convincing, stronger picture on the non-mining capex front. I won’t be surprised to see consensus estimate for GDP lift from here,” said Su-Lin Ong, senior economist at RBC Capital Markets.

Latest estimates for business investment in the year to June 2018 were revised up sharply to A$101.8 billion, from a previous A$85.4 billion. Spending plans for sectors including utilities, construction and retail trade, were running at record highs.

“Non-mining capex rose for the third straight quarter. I think it’s a bit more encouraging than it has been for a while. The fact that its continuing and the plans are a bit stronger is a good sign,” added Ong.

That would be welcomed by the Reserve Bank of Australia (RBA) which has kept interest rates at a record low 1.50 percent since August 2016 hoping that economic growth will accelerate to around 3 percent.

RBA governor Philip Lowe recently reiterated that the drag on Australia’s economy from mining was almost over and cutting rates further would only serve to inflate a debt-ridden bubble in the country’s housing market.

Other measures of economic growth have also been buoyant. Data on Wednesday showed construction spending boasted its biggest increase on record last quarter.

Separate data on Wednesday offered upbeat news on the outlook for housing construction, a mainstay of the economy in recent years.

Measures of business conditions and confidence have also been trending near decade highs.

“If you get a pick-up in business investment it’s a pretty good sign for the economy,” RBC’s Ong said.

Editing by Jacqueline Wong

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