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Australian Companies' Capital Spending Beats Forecasts, Offers Hope For Higher GDP

Australian Companies’ Capital Spending Beats Forecasts, Offers Hope For Higher GDP

Posted Thursday, May 27, 2021 by
Aiswarya Gopan • 2 min read

In another positive sign for the Aussie economy, business investment across the nation increased at the fastest pace seen in nearly 10 years during Q1 2021. According to the Australian Bureau of Statistics (ABS), capital expenditure increased by 6.3% QoQ in real terms between January and March to AUD 31.5 billion, beating economists’ forecast for a 2% rise instead.

The surprising jump was powered by a surge in spending on plant and machinery, which was up by 9.1% in the first three months of the year, followed by a 3.8% rise in investment in buildings. The reading brings some positivity into Australia which has recently imposed a fresh lockdown across the state of Victoria to combat yet another spike in coronavirus cases.

The rise in capital expenditure was the highest seen since 2011 and has increased hopes that the Australian GDP – due next week, could post a positive surprise and come in stronger than expected. What’s even more optimistic is that businesses have revised their spending plans for the coming year higher, from AUD 105.3 billion in February to AUD 113.6 billion in the latest report.

Capital spending is a key contributor to a nation’s economy and is also a leading indicator of how companies perceive economic outlook in the medium term. The strong reading for the first three months of the year is likely to offer some relief to the RBA as it has highlighted the weakness in business investment as a key concern weighing on economic recovery from the coronavirus crisis previously.

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