Not only is the Aussie dollar soaring again (see story below) because of rising commodity prices, but it’s also reflecting higher interest rates, which in turn are reflect the Reserve Bank’s attempts to slow a booming economy.
And nowhere is it booming more than in business investment: the very area that the RBA wants to see grow quickly to increase productive capacity, and take pressure of resources such as labor and raw materials.
But to get that expansion, capacity has to be built and while that’s happening now, it’s straining the economy, adding to inflationary pressures and forcing up interest rates: a real doubled edged sword.
Figures released yesterday by the Australian Bureau of Statistics confirm not only the extent of the boom we saw last year and face this year, but that it has a long, long way to run.
It’s not the year gone by that’s really important from the ABS figures: it’s the first survey of expected capex for 2008-09 financial year that is very, very bullish.
In spite of the upsurge in financial markets volatility, credit crunch, worries about inflation, the US economy, China, Japan and Europe, Australian companies, especially in mining and resources, say they plan to spend at least $78 billion on new projects, buildings, equipment, etc in 2008-09.
That’s up a huge 23.6% on the first estimate for the current 2007-08; a sure sign the optimism hasn’t been lessened by the change in sentiment since last August.
Much of this will happen in construction, transport and other services, the ABS said.
And it indicated that looking out into 2009 there was every sign the growth in spending would continue strengthening.
That was after the ABS revealed a sharper than expected rise in private capital expenditure in the December quarter. The ABS said investment rose 5.1% in seasonally adjusted terms in the three months to $20.679 billion, from an upwardly revised $19.679 billion in the September quarter. The market was expecting a 3.1% rise.
Spending on buildings and structures rose 5.1% and investment in new plant and equipment was up 3.8% in the fourth quarter.
And companies forecast investment of $84.8 billion in the year ending June 30, which was 0.7% above the estimate three months ago, but 14.6% above the same estimate for the 2006-07 financial year and a better indication of the continuing strong growth.
Based on previous years the June 2008 figure could end up around $87 billion, with growth over the next two quarters.
The ABS said that in the first estimate for 2008-9 of a 23.6% increase (to $78.545 billion) from the first estimate of 2007-08, "several industries, notably Construction (107.4%), Transport (88.9%) and Other services (61.5%) stood out with large rises between the two estimates".
Based on what happened over the past five years that could end up around $107 billion by the end of June 2009, the highest ever.
That’s why the ABS said yesterday:” With the addition of the first estimate for 2008-09 the projections for total capital expenditure are very strong for the coming eighteen months.
"The model is forecasting continued growth to move the series well above the current high levels."
This would continue to point to strong business levels for the likes of Leighton, United Group, Transfield Services, Orica, Campbell Bros, Macmahon, Downer EDI, Monadelpheous group and a host of others active in the various sectors of construction, resources, transport and infrastructure.
The ABS said the "increase in total Capex for estimate one has been consistent across both asset types with equipment increasing by 23.1% and building by 24.0%.
"The first estimate for Building and Structures for 2008-09 is 24.0% higher than the 2007-08 estimate at $41,955million. All industries with the exception of Transport have risen in this period which reflects the strong commitment to investment for the coming financial year.
"The buildings and structures current price trend series has seen continued growth over the past five years and the projections shown in this series are suggesting further strong growth through the remainder of this financial year and in 2008-09.
"The first estimate equipment, plant and machinery for 2008-09 is the highest that has been recorded for the equipment asset type at $36,589 million. This is an increase of 23.1% from the previous year.
"Projections for the equipment, plant and machinery current price trend series remain very strong in the coming twelve months with a possible turning point in the second half of the 2008-09 financial year.
"The first estimate for 2008-09 for Mining is recorded at $30,042 million and this is 12.6% higher than the corresponding estimate of 2007-08. Equipment, the smaller asset class, has risen by 22.1% while building and structures has risen by 10.2%.
"The Mining current price trend series has been exceptionally strong in the past five years. With the availability of the first estimate for 2008-09 the model is projecting this series to grow to above $10,000 million capital expenditure per quarter, “the ABS said yesterday.
"The first estimate for Manufacturing in 2008-09 has risen by 14.6% from the weak first estimate of 2007-08 to be recorded at $10,705 million. Both asset types have risen in this time period (equipment by 9.8% and building by 27.9%).
"In recent quarters the Manufacturing trend series has turned upwards after a sustained period of decline that began in late 2005. The projections for the series over the coming eighteen months suggest there will be growth in the series but at a moderate level.
"Estimate 1 for Other Selected Industries 2008-09 is at $37,798 million which is a rise of 37.3% from the previous estimate 1. Building has risen by 52.5% and equipment by 28.6%.
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