SYDNEY–Australian business investment unexpectedly contracted in the third quarter, even as firms said they were ramping up plans to loosen their purse strings in 2019.
Investment fell by 0.5% in the third quarter, with mining and building construction dragging down the result. Economists had expected a 1% rise.
However, an updated estimate of total investment through the 2018-19 fiscal year ballooned to $114.1 billion Australian dollars, up 11.3% from an estimate made three months ago, the Australian Bureau of Statistics said on Thursday.
The jump in investment plans was the strongest upgrade in 19 years, lending support to the Reserve Bank of Australia’s recent forecast that the economy will grow by 3.25% through each of 2019 and 2020.
The report was also good news for Treasurer Josh Frydenberg who will announce an update on the government’s budget position in a month’s time, signaling an early return to surplus.
Higher business investment will boost economic growth forecasts, clearing a path to big budget spending in April, just ahead of a federal election expected in May.
The rosier forecast for investment comes a day after mining giant Rio Tinto PLC (RIO.LN) approved plans to spend US$2.6 billion developing the Koodaideri iron ore mine in Western Australia. Rio Tinto also approved a US$44 million prefeasibility study into a possible later expansion of the operation.
In recent months, BHP Billiton (BHP.AU) and Fortescue Metals (FMG.AU) have also announced big plans for new iron ore capacity, all located in Western Australia’s Pilbara region.
Australia’s economy is slowly shrugging off a hangover in mining investment which has put a brake on economic growth in recent years.
The economy experienced its biggest mining boom in over a century just a decade ago, as firms rushed to meet soaring demand for the raw products of steel making in China.
Those spikes in investment helped the economy extend a record-break period of economic expansion, but the retreat from the highs has been long and painful.
Andrew Hanlan, senior economist at Westpac said investment in non-mining industries was also rising, helping to meet the needs of a fast-growing Australian population.
Investment in services industries hit a record high of $73.6 billion in the year to the end of September. Tourism, health care and education are all growing strongly.
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