Business spending gives economy a boost

Stronger than expected business spending figures will give a boost to next Wednesday's national accounts but economists doubt this will stand in the way of further interest rate cuts by the central bank.

Treasurer Wayne Swan said the latest capital expenditure (capex) data released on Thursday was another timely reminder of the economy's strong fundamentals.

"These investments are boosting the capacity of our economy," he said in a statement.

Capex grew by a stronger-than-expected 2.8 per cent in seasonally adjusted terms to $42.5 billion in the September quarter, 14.2 per cent higher than a year earlier.

Economists reacted by either lifting their forecasts for next week's September quarter national accounts, or conceding there were now upside risks to their pre-data predictions.

Commonwealth Bank of Australia economist Diana Mousina said the capex result would be positive for growth, which should "cheer" the Reserve Bank of Australia (RBA).

She is expecting a solid 0.8 per cent rise in September quarter growth, to be 3.4 per cent higher over the year.

At the other end of the scale, National Australia Bank is sticking for now with its 0.1 per cent GDP rise for the quarter.

However, the Australian Bureau of Statistics report also includes companies' latest investment forecasts for 2012/13.

The total of $173.4 billion was 3.3 per cent lower than the forecast three months earlier, but 4.9 per cent higher than the equivalent stage in 2011/12.

Forecast mining investment for 2012/13 now stands at $109.4 billion compared with $119 billion three months ago.

"These figures show that despite very challenging conditions in the global economy, the outlook for planned investment remains strong," Mr Swan said.

"Of course, our economy has not been immune from global headwinds and we should expect investment to be lumpy going forward due to the massive scale of individual projects."

TD Securities head of Asia-Pacific Research Annette Beacher said those expecting a cut by the RBA at next Tuesday's board meeting will no doubt point out these investment downgrades.

"However, we are mindful that downgrades to mining investment drove the RBA's October cut," she said in a client note.

Nevertheless, she expected Tuesday's meeting to be another "nail-biter".

RBC Capital Markets head of strategy Su-Lin Ong expects the RBA will need to cut the 3.25 per cent cash rate at some stage in order to support the non-resource parts of the economy as the capex pipeline moderates further.

She expects the cash rate to reach a record low of 2.75 per cent in the first half of 2013.

There were further glimmers of hope that the housing sector may be reacting to lower interest rates, with new home sales rising 3.4 per cent in October, boosted by a 31.4 per cent jump in multi-dwelling units.

But house sales declined for the fifth time in six months, down two per cent, according to Housing Association Industry (HIA) data.

HIA chief economist Harley Dale said while the data was moving in the right direction, evidence was needed in coming months of a stronger, broader based recovery for new home building.

"The fact we don't have that evidence now is precisely why the Reserve Bank of Australia should cut interest rates next Tuesday," Dr Dale said.

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