Do you want the bad news, or the good news about the latest private investment figures?
Well, the good news is that the boom is alive and will be bigger than forecast in 2011-12.
The bad news is that’s going to worry the Reserve Bank and will increase the prospects for more interest rate rises, no matter what is happening in the non-resources sectors of the economy.
The latest investment data issued by the Australian Bureau of Statistics yesterday shows just over $30 billion was invested by companies and others in the 90 days of the March quarter, up 3.4%.
Put another way, it was around $330 million a day, which is a fantastic figure.
Spending on building, structures, plant and equipment rose in the quarter which ended up being much stronger than forecast (2.9% was the market estimate) and was more than double the 1.3% rise in the December quarter.
If other quarterly data is positive for the quarter, the economy could escape with a small fall in GDP.
But the investment figures probably only offset the weaker than expected construction spending that was released this week (see below).
The spending came despite the disruption caused by the floods in Queensland and parts of Victoria at the start of the year.
But the most interesting part of the release was the second estimate for investment in the 2012 financial year: a massive $139.54 billion, against the first estimate of $132.7 billion made three months ago.
That’s 30.9% above the second estimate for 2010-11 which again underlines what the Reserve Bank is worried about when it discusses the economy and monetary policy.
That compares to the 6th estimate for the current financial year of $124 billion, a fall of 4% from February’s 5th estimate.
And the driver for the big increase next financial year is the boom in mining investment: a massive $83.3 billion and well above the budget estimate, made only a fortnight ago of $76 billion.
Quite clearly the boom will be bigger than expected (and by the way Shell added $11 – $12 billion to spending next year and for the next three years with its decision to go with the Prelude floating LNG project and there’s a multi-billion dollar ‘yes’ coming from Woodside in the next few months for the second stage of its Pluto project.
And the surge is solely in mining and resources: manufacturing expects to spend $11.9 billion in the new year, down from $12.2 billion when the current financial year is totalled.
But the new figure is about line ball with the estimate a year ago, so there’s no sign yet of the stronger dollar stopping spending on expansion in this sector.
The big fall was noted in the "other selected industries” category with a 2011-12 estimate of $44.8 billion down on the 2010-11 estimate of $60.6 billion.
The sub-sector most responsible for that fall is electricity, gas, water and waste services. But again, the March quarter estimate is pretty much in line with spending in the last two years.
The AMP’s chief economist Dr Shane Oliver highlighted the two faced nature of the investment figures.
"On the one hand it adds confidence to the strong medium term growth outlook for Australia," he wrote yesterday.
"On the other it will only serve to reinforce the Reserve Bank’s inclination to raise interest rates again at some point.
"Given heightened global uncertainty at present, mixed recent economic data releases in Australia and the likelihood that next week’s GDP data will show the Australian economy as having contracted in the March quarter, we think that a June rate hike is unlikely.
"However, a move around August still looks likely," he said.
The Government’s resources forecaster, the Australian Bureau of Agricultural and Resource Economics yesterday said that at the end of April 2011, there were 94 projects at an advanced stage of development, with a record capital expenditure of $173.5 billion.
This represents a 31% increase from October 2010.
New capital expenditure in the mining industry is estimated to be $55.5 billion in 2010–11, 53% higher than in 2009–10.
"In real terms (2010–11 dollars), new capital expenditure in 2010–11 is the highest on record and nearly four times the average annual expenditure of the past 30 years ($14.7 billion), Abares said.
The record value of advanced minerals and energy projects reflects, in part, the decision to proceed with the development of the Gladstone LNG project and BHP Billiton, Fortescue Metals and Rio Tinto’s commitment to several coal and iron ore developments over the next three years.
Based on industry intentions from the December quarter 2010, Australian Bureau of Statistics (ABS) survey data indicate capital expenditure in the mining sector in 2011–12 may be around $73.7 billion.(Actually, $76 billion, according to the ABS data issued yesterday).
That’s an increase of 30% on the record figure for the current year, or double the amount of just two years ago.
In the six months to April 2011, 10 projects with a combined capital cost of $2.8 billion were completed in Australia.
But the weaker
than expected construction data for the March quarter adds to the suggestions that the RBA will delay a rate rise until it gets a bit more of handle on the economy.
Total construction work done in Australia rose 0.7% in the March quarter (to $42.326 billion) in seasonally adjusted volume (price-adjusted) terms, according to the
