Led by a resurgent mining sector, business investment is rebounding strongly.
Figures out yesterday confirm the recovery from the surprise fall in the September quarter and provide a very upbeat outlook for 2011.
They confirm the recent confidence from senior Reserve Bank officials that the mining boom was back with added oomph.
Private investment rose 5.5% in the December quarter, up from the revised (down) 5.2% fall in the September quarter.
The rise was more than double market estimates for a 2.0% rise in the December quarter.
The figures suggest we will see an acceleration in economic growth in 2011, especially if the gathering rebound in Asia continues (see accompanying story).
But we will have to watch unemployment, wages and prices for government services in coming months to get a sense of where interest rates are headed in the next year.
The forward estimates for capex for the rest of this financial year and 2010-11 were surprisingly strong, with the first estimate for the next financial year already more than $101 billion and driven by a gathering surge in mining-related investment.
Abare (the Australian Bureau of Agricultural and Resource Economics) should flesh this figure out in next week with new a new edition of Australian Commodities publication.
In a speech earlier this week, Reserve Bank deputy Governor, Ric Battellino said the mining boom could see investment in projects such as LNG, oil, iron, ore, coal, railroads, roads etc hit 6% of Gross Domestic Product, more than double the level of the mining boom of the 1970s.
These figures suggest that we are well on the way to hitting that level in the next year or so.
The Australian Bureau of Statistics figures show that the rise in vehicle purchases in the last quarter (thanks to the tax breaks for buyers from small business) helped push up investment.
While there was a 1.7% fall in the seasonally adjusted estimate for investment in buildings and structure, there was a 12.4% jump in the seasonally adjusted estimate for investment in equipment, plant and machinery.
Coupled with the solid rise in new construction work in the quarter of 2.5%, there should be a reasonable contribution to the 4th quarter growth figures to be released next Wednesday.
Investment plans for the current financial year continue to grow and are now running at more than $110 billion.
The ABS said that Estimate 5 for total capital expenditure for 2009-10 is $110,636 million.
The ABS said this is 0.4% higher than Estimate 5 for the 2008-09 financial year.
"The main contributors to this increase, by industry, were Construction (57.1% higher than the corresponding previous estimate) and Other Selected Services (18.7%).”
More importantly, this estimate is 6.7% higher than Estimate 4 for this financial year 2009-10.
"By major industry group, the main contributors to this rise were Mining (9.4%) and Other selected industries (6.1%)."
And, the first estimate for the 2011 financial year is almost as big as the 5th estimate for this year at $101 billion.
That was 15.3% up on the first estimate for 2009-10.
A rise of that level would see capex topping $116 billion or more, with mining investment half that figure.
The big driver in the mining industry.
According to ABS figures mining industry investment for this financial year is estimated at around $41.3 billion, up on the 4th estimate by 9.4% (but just down on the 5th estimate for the 2009 year).
But the first estimate for mining investment for the 2011 financial year is a huge 38% above the first estimate for the current year at $49.09 billion.
While these are always estimates (and optimistic at that), there has been a consistent rise in investment intentions in each estimate for the past three quarters, which is a solid point for a strong 2010.
That’s over 4.5% of GDP and heading for the 6% estimate that Mr Battellino mentioned this week.
