Companies spend up despite slowdown

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This was published 15 years ago

Companies spend up despite slowdown

By Chris Zappone

Companies ramped up plans for spending in the final months of last year, providing enough momentum for the economy to trigger a fresh look at 2008 growth estimates.

Business spending expectations for the three months to the end of December skyrocketed 6%, to $24.8 billion, seasonally adjusted, from an upwardly revised 1.6% rise in the September quarter, the Australian Bureau of Statistics said. The September quarter original value totalled $23.2 billion.

That came as the bureau also revealed the Australian average weekly wage had risen 5.5% in the 12 months to November, when it stood at $1166.50.

The increase in capital expenditure surprised analysts, who expected a 3% contraction.

''This will provide vital support to fourth quarter GDP growth,'' said ANZ economist Katie Dean. ''Australia may well avert a negative read.''

A survey of analysts by Bloomberg expect fourth quarter gross domestic product to shrink to minus-.1%, sending the economy into reverse, alongside the US and UK which are struggling with recession.

In the third quarter GDP grew 0.1%.

''Today's data will prompt forecasters to rush to upgrade expectations for fourth quarter GDP growth,'' she said.

Indeed, Westpac Bank upgraded their forecast for 2008 to 1.5% from 0.8% based on higher capital expenditures. For the quarter, they expect growth to register at 0.5% from an earlier expected minus-0.1%, the bank said.

''We have amended our forth quarter forecast following today's better than expected capital spending numbers,'' wrote JP Morgan economist Helen Kevans. ''Previously, we had expected GDP to shrink -0.5% in the fourth quarter, which included a sharp contraction in investment in new machinery and equipment.''

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''Now, though, in the wake of today's data, we expect flat GDP growth in the fourth quarter,'' she wrote, noting it's a preliminary estimate.

ANZ won't upgrade its growth estimates until company profits and inventories data are released next week, Ms Dean wrote.

''But at the very least this week's stronger than expected data confirms Australia will avoid the big negative forth quarter GDP results that have befallen most of our trading partners.

Annual GDP growth figures will be released by the ABS next week.

Today's figures on capital spending were foreshadowed by a higher-than-expected 1.7% forth quarter gain in completed construction work, revealed in ABS data yesterday.

Although both business expenditure and construction work done show strength, they are readings of economic activity from last year, analysts note.

Most forward readings, such as consumer and business confidence, show weakness ahead.

Other factors point to a fraying labour market.

The January jobless rate climbed to 4.8% from 4.5% in the previous month.

This week clothing maker Pacific Brands announced it would layoff 1850 workers and shift production to China, while car parts maker Drivetrain Systems International cut 200 positions because a slumping demand from carmakers.

Average weekly wages grew 1.6% in November, ABS said, to $1,166.50 per week, or 5.5% higher over the year.

''This strong wages growth is largely a historical by-product of a strong labour market,'' wrote Ms Dean ''It won't worry our forward looking Central Bank.''

The Reserve Bank, like central banks around the world, has set aside any concerns about wage-driven inflation for worries about ensuring economic growth in time of a downturn.

The market is currently pricing in only 38 basis points of rate cuts when the RBA meets to decide on further reductions to the 3.25% interest rate tomorrow.

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