Investment spending data shows the economy returned to growth in the June quarter and avoided a recession, economists say.
Official figures show the increase was underpinned by double-digit percentage increases in the booming mining sector, although investment in manufacturing showed a surprising increase leading to optimism about growth in areas of the economy outside mining.
New private capital expenditure (capex) for the June quarter rose 4.9 per cent in inflation and seasonally adjusted terms, the Australian Bureau of Statistics (ABS) said on Thursday. The median market forecast was for a rise of four per cent.
On Wednesday of next week, the ABS will publish the June quarter national accounts, which includes gross domestic product data that will show by how much the economy grew.
JP Morgan economist Ben Jarman said Thursday’s capex data boded well for a positive June quarter GDP result. In the March quarter the economy took a backward step, with gross domestic product (GDP) falling 1.2 per cent after natural disasters crippled coal mining and exports. This has led to fears that the June quarter might show a second consecutive contraction, which is the conventional definition of a recession.
“It is safe to say, that with coal output returning to normal following the Queensland floods, the second quarter GDP report should show a solid expansion of around one per cent in the quarter,” Mr Jarman said.
“Moving through the second half of this year, the key concern to the growth outlook is the dysfunction in financial markets and how that flows through to private sentiment and behaviour.
“The aggregate economy looks to have had decent momentum moving into these shocks.”
Mr Jarman said it was not surprising that the strength of the capex figures was concentrated in the mining sector.
Mining investment posted its second consecutive double-digit quarterly increase, up 14.4 per cent in the June quarter, after a 12 per cent rise in the March quarter.
“Consecutive results of this magnitude have not been registered since 2006,” Mr Jarman said. “Spending in the manufacturing sector – despite the headwinds of a high currency and softness in domestic goods demand – was decent, up 3.7 per cent in the June quarter.”
Nomura chief economist Stephen Roberts said capital expenditure expectations for the mining sector to the end of this financial year were starting to level off.
He said the rise in investment expectations in manufacturing was surprising.
“There was a very strong lift in manufacturing and their expectations, so if anything it points to a broadening capex boom as we look out over the next 12 months,” he said.
“So these numbers suggest the economy is going pretty well. Capex will probably contribute 0.9 per cent to June quarter GDP, it gives (a) nice contribution to the second quarter GDP to be released next week.”
Mr Roberts said Thursday’s economic data won’t change the outlook for the cash rate, which stands at 4.75 per cent.
RBC Capital Markets senior economist Su-Lin Ong said the capital expenditure data showed business spending plans were “very much on track”.
“The business spending story is well underway and, more importantly, the spending plans for fiscal year 2011/12 remain very strong,” she said.
Ms Ong said the data was not likely to prompt the RBA out of its holding stance on interest rates.
