Australian Economic Recovery From Non-Mining Investments

In Melbourne and Sydney, it is expected that growth in business spending for the year ahead will bring improvements to employment and wages. At last, non-mining business investments are gathering pace.

The first improvement in the last 12 quarters was particularly evident with the 1.6% increase in total business investments in the December quarter. However, the level of $52.4 billion only represents 12.2% of the GDP which until the June quarter was at its lowest level in the past 11 years.

Investments have fallen because of the absence of large resource projects to replace those that have been commissioned during the boom. The projects have been completed and about to enter production. Non-mining investment was insufficient to offset the fall in the resources sector. However, Reserve Bank governor Philip Lowe has surprised a lot of people when he said that further pick-up is expected from the non-mining business investments.

While Lowe did not particularly identify the improvements, he has remarked that investment outlook remains subdued. Minutes later, it was clarified that the Reserve Bank is seeing improved investments in NSW and Victoria. Improved investment was encouraged by the increasing number of approvals for non-residential building constructions that will contribute to GDP growth once the projects start.

According to Lowe, a better business environment is being created with the improvements in global economy, lower interest rates and cumulative exchange rate depreciation. Utilization for many firms have risen because of non-mining investments has been comparatively weak. Businesses have to start making investments to expand production because the population is growing.

Reports for non-residential building approvals are consistent with the improving outlook. While the picture is not actually uniform, since there are few hotel and warehouse projects, the level of proposed activity is 20% higher and is expected to generate more jobs for the next two years.

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