SYDNEY - Australian business investment rebounded in the fourth quarter, a sign the economy is strengthening enough for the central bank to raise interest rates next week for the fourth time in six months.
Capital spending advanced 5.5 per cent from the previous quarter, when it fell a revised 5.2 per cent, the Bureau of Statistics said. The median estimate of 19 economists surveyed by Bloomberg News was for a 2 per cent gain.
Rising Chinese demand for Australia's iron ore, coal and gas is stoking what central bank Deputy Governor Ric Battellino this week described as a record boom in mining investment that will fuel economic growth.
Falling unemployment and a jump in consumer confidence, helped by Prime Minister Kevin Rudd's A$42 billion ($54 billion) stimulus package, were among reasons policy makers boosted borrowing costs three times last quarter.
"These are good signs that businesses are certainly looking at the economic recovery confidently and dusting off those mothballed investment projects," said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney.
Investment plans of businesses are at the highest level in five years, "and there are very good signs they'll follow through on those plans, which is heartening for the Reserve Bank", said Sebastian, who predicts a quarter-point increase in the benchmark interest rate to 4 per cent next week.
Companies forecast investment of A$110.6 billion in the year ending June 30, which is 6.7 per cent more than they estimated three months earlier. They plan A$101.4 billion of new investment in the year ending June 30, 2011.
BHP Billiton, the world's largest mining company, said this month that it will increase capital spending on iron-ore mines and oil fields by 63 per cent next year to US$20.8 billion from US$12.8 billion this year.
Global economic conditions have improved over the past six months as the US and Europe lifted industrial output and China returned to double-digit growth, BHP said on February 10.
Companies may boost investment in new Australian mines, ports and infrastructure to 6 per cent of gross domestic product, more than double the amount spent during the last resources boom in the late 1970s, Battellino said.
Investment as a share of GDP by companies such as Chevron is "significantly higher than recorded in previous booms and is thought likely to rise further", he said. Chevron in December announced it signed an US$82 billion deal with Japan's Tokyo Electric Power to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6500 jobs during construction.
That's in addition to the A$43 billion Gorgon natural-gas venture involving Chevron, Exxon Mobil and Royal Dutch Shell. The nation's single-biggest investment project was announced last year and will create as many as 10,000 jobs.
Employers added 194,600 jobs in the five months through January, the biggest increase in more than three years, driving the unemployment rate to an 11-month low of 5.3 per cent.
The economy has less scope than previously expected for "robust" growth that doesn't stoke inflation, Reserve Bank of Australia Governor Glenn Stevens told lawmakers at a parliamentary committee hearing in Canberra on February 19.
"Monetary policy must be careful not to overstay a very expansionary setting."
Stevens and his board raised the overnight cash rate target three times during the last quarter of 2009 to 3.75 per cent from a half-century low of 3 per cent.
Spending on buildings and structures fell 1.7 per cent in the fourth quarter, the report showed.
SPEND-UP
* Bureau of Statistics survey of Australian business investment shows:
* 5.5 per cent Increase in capital spending.
* A$110.6b Expected to be spent by companies in year to June 30.
- BLOOMBERG
Australian firms open their cheque books
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