Australian Business Investment Falls by Record as Mining Slumps

(Bloomberg) -- Australian business investment fell by the most on record last quarter as spending by firms in mining and other industries slumped, sending the currency lower.

Capital expenditure plunged 9.2 percent in the three months through September from the prior quarter, the largest decline in records going back to 1989, according to calculations by Bloomberg based on government data released Thursday.

* Mining investment dropped 10.4% in 3Q vs 2Q

* Other industries investment fell 10%

* Manufacturing investment rose 6.9%

Firms estimated they will spend A$120.4 billion on investment this fiscal year, in line with economists’ estimates, and about 21 percent lower than at the same time 12 months earlier, the report showed. The Australian dollar traded at 72.24 U.S. cents at midday in Sydney from 72.60 before the release.

“With commodity prices falling again, the clear danger is that at some point the Reserve Bank of Australia will have to conclude that the outlook for investment is worse than it thought,” said Paul Dales, chief economist for Australia and New Zealand at Capital Economics who predicts a further two rate cuts to 1.5 percent early next year.

Unwinding Boom

The central bank estimates Australia is about halfway through the unwinding of a mining investment boom and has slashed the benchmark interest rate to a record-low 2 percent to help the economy adjust. The data Thursday offered a glimmer of optimism for policy makers’ aim to stimulate business spending outside resources, with firms in “other” industries predicting 6.1 percent more investment this fiscal year compared with their estimate three months earlier.

Traders are pricing in little chance the central bank will ease policy at its meeting Tuesday.

--With assistance from Kimberley Painter.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Iain McDonald, Victoria Batchelor