Australian business investment falls 0.9% in first quarter

SYDNEY Reuters -- Australian business investment fell unexpectedly in the first quarter as floods and bottlenecks hit building work, but firms lifted plans for spending in the year ahead in a boost to the economic outlook.

Private capital spending fell by a real 0.9% in the March quarter, from the previous quarter, missing forecasts of a 1.5% increase, according to data from the Australian Bureau of Statistics.

Spending on buildings fell 1.7%, offsetting a 1.2% rise in investment in plant and machinery, which is important as this will directly contribute to economic growth in the quarter.

The spending plan for the year to June 2023 was upgraded by firms to a strong A $130.5 billion $92.49 billion, an increase of almost 12% on the previous estimate and well above the A $122 billion analysts had hoped for.

Construction work done fell by 0.9% in the first quarter due to bad weather and supply shortages, particularly in housing where building costs rose at the fastest pace in 21 years, according to the report.

Analysts predicted that there was a downside risk to gross domestic product GDP next week, from as low as 0.2% to as much as 1.0%.

The main unknown is household spending on services, which could have been hit early in the quarter by a sudden outbreak of the Omicron variant of COVID - 19.

Retail sales rose by a solid 1.2% in the quarter to a record high of A $93 billion in real terms, with consumers not yet deterred by surging goods prices.

Trade could subtract as much as 1.5 percentage points from GDP in the quarter because of an unusually steep increase in imports.

Even though domestic demand was strong, headline GDP might show little growth because of the drag.

The Reserve Bank of Australia RBA was confident in the recovery to raise interest rates by a quarter point to 0.35% this month, the first hike since 2010, and to flag more ahead.

Markets are betting on a quarter-point rise to 0.60% in June and a string of moves to 2.5% by the end of the year.

Most economists argue that market pricing is too aggressive given households hold record amounts of debt and are exposed to rising borrowing costs.

This week, hawks were emboldened by the central bank of New Zealand's hike by 50 basis points to 2.0% and projected rates of 3.5% by the end of the year.