Business torrents

Australian business investment rebounded in the fourth quarter, a sign the economy is strengthening enough for the central bank to raise interest rates next week for the fourth time in six months.

Capital spending advanced 5.5 percent from the previous quarter, when it fell a revised 5.2 percent, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg News was for a 2 percent gain.

Rising Chinese demand for Australia’s iron ore, coal and gas is stoking what central bank Deputy Governor Ric Battellino this week described as a record boom in mining investment that will fuel economic growth. Falling unemployment and a jump in consumer confidence, helped by Prime Minister Kevin Rudd’s A$42 billion ($38 billion) stimulus package, were among reasons policy makers boosted borrowing costs three times last quarter.

“These are good signs that businesses are certainly looking at the economic recovery confidently and dusting off those mothballed investment projects,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney.

Investment plans of businesses are at the highest level in five years, “and there are very good signs they’ll follow through on those plans, which is heartening for the Reserve Bank,” said Sebastian, who predicts a quarter-point increase in the benchmark interest rate to 4 percent next week.

The Australian dollar traded at 89.35 U.S. cents at noon in Sydney from 89.36 cents just before the report was released. The two-year government bond yield fell 1 basis point to 4.66 percent. A basis point is 0.01 percentage point.

Investment Plans

Companies forecast investment of A$110.6 billion in the year ending June 30, which is 6.7 percent more than they estimated three months earlier.

They plan A$101.4 billion of new investment in the year ending June 30, 2011.

BHP Billiton Ltd., the world’s largest mining company, said this month that it will increase capital spending on iron-ore mines and oil fields by 63 percent next year to $20.8 billion from $12.8 billion this year.

Global economic conditions have improved over the past six months as the U.S. and Europe lifted industrial output and China returned to double-digit growth, BHP said on Feb. 10.

Companies may boost investment in new Australian mines, ports and infrastructure to 6 percent of gross domestic product, more than double the amount spent during the last resources boom in the late 1970s, Battellino said on Feb. 23.

Natural Gas

Investment as a share of GDP by companies such as Chevron Corp make quick cash. is “significantly higher than recorded in previous booms and is thought likely to rise further,” he said.

Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.

That’s in addition to the A$43 billion Gorgon natural-gas venture involving Chevron, Exxon Mobil Corp. and Royal Dutch Shell Plc. The nation’s single-biggest investment project was announced last year and will create as many as 10,000 jobs.

Employers added 194,600 jobs in the five months through January, the biggest increase in more than three years, driving the unemployment rate to an 11-month low of 5.3 percent.

The economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, Reserve Bank of Australia Governor Glenn Stevens told lawmakers at a parliamentary committee hearing in Canberra on Feb. 19. “Monetary policy must therefore be careful not to overstay a very expansionary setting.”

Rate Bets

Stevens and his board raised the overnight cash rate target three times during the last quarter of 2009 to 3.75 percent from a half-century low of 3 percent.

Investors are betting there is a 52 percent chance of a quarter-percentage-point rate increase when the Reserve Bank next meets on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 11:44 a.m.

Spending on buildings and structures fell 1.7 percent in the fourth quarter, today’s report showed. Company investment in new plant and equipment advanced 12.4 percent.

Investment is being stoked as Prime Minister Rudd’s government spends A$22 billion on roads, railways and schools. He has also distributed A$20 billion in cash to households, most of it in the first half of last year.

“Preliminary reports suggest that the economy grew strongly towards the end of 2009,” expanding 0.75 percent in the fourth quarter from the previous three months, Ben Dinte, an economist at Macquarie Group Ltd. in Sydney. “Growth should continue to gain pace over 2010, with gross domestic product gaining 3.75 percent.”

Fourth-quarter GDP figures will be published on March. 3.

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