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Capex boost a good omen for economy

The Australian dollar has jumped ahead against the greenback after the Australian Bureau of Statistics increased its forecast for business spending this financial year.

The local currency added more than quarter of one US cents after the release of the figures, which showed Australian companies increased capital expenditure by 3.6 per cent to $40.7 billion in the September quarter.

Economists were expecting a fall of 1.2 per cent.

At 2:15pm (AEDT), the Australian dollar was buying 91.22 US cents, after dipping as low as 90.76 US cents earlier in the day.

The ABS expects spending to hit $166,832 this financial year, which is an increase of 3.4 per cent on its previous estimate.

TD Securities chief economist Annette Beacher says the result shows lower interest rates are helping to boost economic growth.

“This is what the Reserve Bank needs to see, in terms of a turnaround in non-mining investment,” she said.

“And this is more or less a nail in the coffin for another rate cut as far as I’m concerned. The Reserve Bank can sit tight on 2.5 per cent for quite some time.”

Ms Beacher says the figures show mining and manufacturing investment will continue to decline over the next year.

“But the Reserve Bank is looking for services investment to pick up, and that is what is in this report,” she said.

“From previously expecting a fall of 3 per cent to now expecting an increase of 3 per cent. So this should allay any fears that investment is shrinking across all sectors.”

Topics: Economy
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