SYDNEY – Australia's economy has pulled clear of a mining investment downturn that held back economic growth for half a decade, bolstering forecasts for a healthy expansion in 2018.
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Mining investment was flat in the third quarter, according to government data released Thursday. The result snapped an unbroken run of declines spanning three years and confirmed that growth ahead will be driven by an export boom, and stronger growth in services industries.
Total business investment rose by 1% over the third quarter, it's third successive expansion, with non-mining investment climbing solidly.
Firms also revised higher expected capital spending in the year ahead, bringing the investment report more in line with surveys of business conditions showing profits, confidence and hiring intentions are strong. The latest estimate for business investment in 2017-18 of 109 billion was the strongest in 5 years, the government report showed.
For the Reserve Bank of Australia, the stronger investment outlook bolsters its forecast for above trend economic growth of more than 3% in the coming years.
Rising business investment is also expected to help accelerate wages and return inflation back to within the RBA's desired band of 2-3% sooner.
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Craig James, chief economist at Commsec said upward revisions to investment over the 2017-18 financial year are the strongest in 12 years, but outpointed that the government data was not relective of the whole picture.
"This may be understating the true situation," he said of the data. Some of the industries such as health care and education which are growing rapidly have been missed by the data collection, he said.
Strong corporate balance sheet across corporate Australia and falling prices for new equipment have also helped spur investment, economists said.
The improvement in capital expenditure follows a boom in hiring in Australia throughout 2017, led by full-time jobs growth.
Still, the economy remains unbalanced and the RBA is expected to lag well behind its global counterparts in raising interest rates.
RBA Gov. Philip Lowe told economists last week that inflation is taking longer than expected to gather momentum, so there is no near-term case for higher interest rates. With wages growth at record lows and inflation safely contained, some economists expect the RBA will remain out of the picture until 2019.
Also Thursday, permits to build new homes rose 0.9% in October, beating market expectations of a 1% fall, and marking the ninth monthly rise in a row. Much of the gain was attributed to increased approvals in Victoria and Queensland, two states already nominated as potential areas of coming over supply.
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(END) Dow Jones Newswires
November 30, 2017 00:39 ET (05:39 GMT)