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China trade boon for Australia

(China Daily)
Updated: 2010-02-26 11:45

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 percent from the previous quarter, when it fell a revised 5.2 percent, the Bureau of Statistics said in Sydney Thursday. The median estimate of 19 economists surveyed by Bloomberg News was for a 2 percent gain.

Rising Chinese demand for Australia's iron ore, coal and gas is fueling what central bank Deputy Governor Ric Battellino this week described as a record boom in mining investment that will fuel economic growth.

A cargo ship passes under Sydney Harbour Bridge. Capital spending rose 5.5 percent from the previous quarter. [Agencies]

Falling unemployment and a jump in consumer confidence, helped by Prime Minister Kevin Rudd's A$42 billion ($38 billion) stimulus package, were among reasons policymakers 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 percent next week.

The Australian dollar traded at 89.35 cents at noon in Sydney from 89.36 cents just before the report was released. The two-year government bond yield fell 1 basis point to 4.66 percent. A basis point is 0.01 percentage point.

Companies forecast investment of A$110.6 billion in the year ending June 30, which is 6.7 percent 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 Ltd, the world's largest mining company, said this month that it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion from $12.8 billion this year.

Bloomberg News