Country Report Australia October 1996 Main report

Economy: New business investment surges--

New private-sector investment leapt by 16% to A$10.4bn during the second quarter (real terms, seasonally adjusted; see 1st quarter 1996 for an explanation of the differences between this series and the national accounts investment data). Spending on construction rose by 37.3%, more than reversing the 24.2% decline recorded in the first quarter. Spending on equipment rose by 8.8%.

The overall growth in new private-sector investment came to 11.7% for 1995/96, with spending on construction rising by 26% and spending on equipment by 6.5%. The level of new private-sector investment for the year was A$37.8bn, in line with earlier business expectations.

New capital spending by the services industries rose by 27.7% during the second quarter. This surge at least partly reflects the roll out of cable for tele-phony and pay television. Spending by the mining industry also rose strongly during the quarter (by 16.5%), while manufacturing recorded a 6.5% decline.

--and firms expect that growth will continue

Business expects around A$39.5bn of new private-sector investment for 1996/97. This estimate is higher than both the previous one made for 1996/97 (by almost 10%) and the corresponding estimate for 1995/96 (by over 15%), suggesting that business remains bullish on investment. Typically, estimates of new private investment made 12 months in advance understate actual investment by around 8% (although there is substantial year-to-year variation in the degree of accuracy). If this relationship continues to hold good, new private investment of around A$42bn can be anticipated for 1996/97.

The mining sector is particularly optimistic, anticipating growth of over 28% in new capital spending for 1996/97 (compared with the corresponding estimate made for 1995/96, rather than the 1995/96 actual). The services sector also expects its strong investment growth to continue, with a rise of 17.6% being anticipated. In contrast, manufacturing is looking to an increase of only 2.1% for 1996/97. This modest expectation is hardly surprising, in the light of the recent slow growth in manufacturing output.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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