Finance counsels

Australian business investment growth probably slowed in the first quarter, adding to signs the highest borrowing costs in 12 years are prompting companies to review spending plans.

Capital spending rose 3 percent in the three months through March from the fourth quarter, when it gained 5.1 percent, according to the median estimate of 23 economists surveyed by Bloomberg News. The Bureau of Statistics will release the report tomorrow at 11:30 a.m. in Sydney.

Australia's 17-year economic expansion may cool as companies spend less on machinery and construction. Central bank Governor Glenn Stevens, who raised the benchmark interest rate in March for the fourth time in seven months, aims to slow the economy enough to bring inflation back within his target range of between 2 percent and 3 percent by 2010.

“Conditions have deteriorated for businesses, with the economic outlook more uncertain, the cost of funding rising and the availability of credit in capital markets more limited,'' said Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

The annual growth of an index of leading economic indicators slowed in March for a fourth month, Westpac Banking Corp. and the Melbourne Institute said in Sydney today. The annualized growth rate of the index slowed to 3.3 percent from 3.6 percent in February.

Economic Growth

“The leading index continues to point to an abrupt slowdown in economic activity,'' said Matthew Hassan, a senior economist at Westpac.

The central bank cut its forecast this month for annual economic growth to June 2009 to 2.75 percent from the 3 percent it predicted three months earlier.

First-quarter GDP figures will be published on June 4 faxless payday advance.

Cooling domestic demand “will help to reduce inflation over time,'' the Reserve Bank said on May 9. “Wage pressures are likely to ease in due course as the rate of unemployment is forecast to increase, in line with slower growth.''

Businesses boosted spending in three of the past four quarters as surging demand from China for iron ore and coal spurred mining companies, including Rio Tinto Group, to expand ports, railways and mines, pushing the nation's unemployment rate close to the lowest since 1974.

Skills Shortage

Rio Tinto, the world's third-largest mining company, may spend $10.2 billion to expand output by 26 percent at its Queensland Alumina refinery amid forecasts that Chinese demand for the metal may rise 15 percent a year through 2015, Dick Evans, chief executive officer of the aluminum unit, said on April 30.

Concern that a shortage of skilled workers may drive up inflation was a key reason the Reserve Bank increased the benchmark official cash rate target to 7.25 percent in March. It also raised borrowing costs in February, November and August.

Policy makers spent “considerable time'' discussing the case for a further rate increase when they met on May 6, according to minutes of the meeting published last week.

“Should demand not slow as expected, or should expectations of high ongoing inflation begin to affect wage and price setting, the outlook, and the stance of policy, would need to be reviewed,'' board members said.

Bloomberg Survey

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