Investment favouring Aust mining sector more

SYDNEY: The outlook for business investment remains strong, if heavily skewed toward the mining sector.
The Australian bureau of statistics reported new private capital expenditure (capex) fell by 6.5% in real terms in the September quarter, however that followed strong rises over the first half of the year (even allowing for the inclusion of Telstra Corp in the private sector data, which boosted the March quarter estimates).
But the updated projections for capex, as economists call it, are more important than whatever the volatile quarterly figures dish up.
The projections suggest a further solid increase in 2007/08 (the year ending June 2008) after steep rises over the past six years.
Adjusting for the average forecasting error of the past five years, the survey points to an increase in the order of 16%, not adjusting for price changes.
That would lift spending by businesses covered in the survey to more than double the low seen in 2000/01 in the aftermath of the high-tech share price slump.
Much of the increase is coming from the mining sector, where the figures point to a rise in investment spending of 28 per cent in 2007/08, to more than five times the 2000/01 level.
The rest of the private business sector covered by the survey is looking at capex growth of a more modest 7% or so, with growth from 2000/01 likely to be a more sedate 60%.
While these figures were impressive, it was important to look at them in the context of the total economy.
In 2007/08 gross domestic product (GDP) will be about 63% higher than in 2000/01 in current price terms (ie not adjusted for inflation).
In other words, capex outside the mining sector had just kept pace with the rest of the economy, staying at a little over 5% of GDP.
In contrast, mining investment will have risen from less than 1% of GDP to 2.5%.
It is clear - not surprisingly given the strongest boom in minerals prices for many decades - that the pick-up in investment was concentrated in the mining sector.
Its inflationary effects, unfortunately, cannot be quarantined from the rest of the economy, and the mining boom will continue to boost spending and demand for labour across the country.
Accordingly, barring a turn for the worse in the global economy, the Reserve Bank of Australia (RBA) will have an interest rate hike on the agenda at its February board meeting, following the release in late January of the next round of quarterly inflation figures. – AAP