Sydney, Nov. 28 (Bloomberg) -- Australian miners and manufacturers increased investment spending in the third quarter, underpinning economic growth as a drought cuts farm production and exports falter. Business investment rose 2.3 percent, the Australian Bureau of Statistics said. That follows a revised second-quarter increase of 5.2 percent. Investment was expected to rise 2.5 percent, according to the median forecast in a Bloomberg News survey of 21 economists. A rise in investment will fuel economic growth in the third quarter, economists said, ensuring the economy keeps expanding at an annual pace of more than 3 percent. The gross domestic product report, to be released Wednesday, is expected to show the economy grew 0.9 percent from the second quarter and 3.5 percent from a year earlier, according to a Bloomberg News survey.
``Investment will help bolster growth and fill the gap left by the drought and a likely slowdown in housing,'' said Su-Lin Ong, senior economist at RBC Capital Markets. Today's report also shows businesses plan to invest more in the current financial year. Companies say they will spend A$48.62 billion ($27.04 billion), or 3.1 percent more than they estimated three months ago, on new investments in the year ending June 30, 2003. ``It's a relatively upbeat report and is consistent with the Reserve Bank keeping rates on hold rather than cutting them,'' Ong said. Speculation has grown that the central bank may cut interest rates because of the global economic slowdown and worsening drought. The implied yield on the March 90-day bank bill futures fell as low as 4.59 percent, below the central bank's 4.75 percent target rate, signaling investors see the chance of a rate cut in coming months.
Central Bank
The Reserve Bank meets next week and 22 of 23 economists surveyed by Bloomberg News expect it to keep the benchmark overnight cash target rate unchanged at 4.75 percent. The bank raised interest rates a half percentage point this year, before leaving them unchanged the past five months. The central bank said in its quarterly economic statement this month that ``prospects for further growth in investment are still good.'' Australian government bonds trimmed a decline after the report. The yield on the 7.5 percent bond maturing in July 2005 rose 14 basis points to 4.98 percent at 11:40 a.m. Sydney time compared with 5 percent just before the report's release.
Grim Times
The latest survey of spending plans was held when global stock markets were slumping and as signs emerged that an economic recovery in the U.S., Australia's second-largest export market, was slowing. Exports declined 2 percent in September, widening the trade deficit to A$948 million, its largest in two years. As well, a drought has gripped more than one-third of the nation and the government said yesterday farm production will slump 17 percent in the year to June 30, 2003. Firms spent 11 percent more in the third quarter on building and structures. Purchases of equipment, plant and machinery fell 0.3 percent following four straight quarterly gains. //www.quote.bloomberg.com