Investment by Australian companies fell in the 1st quarter, but the outlook has been revised upwards.

Australian business investment fell unexpectedly in the first quarter as flooding and bottlenecks affected construction work, although companies sharply increased their spending plans for the year ahead, boosting the economic outlook.

Data from the Australian Bureau of Statistics released on Thursday shows that private investment spending fell 0.9% in real terms in the March quarter, compared to the previous quarter, missing forecasts for a 1% increase. 5%.

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

Promisingly, companies have upgraded their spending plans for the year to June 2023 to A$130.5 billion ($92.49 billion), an increase of nearly 12% compared to the previous estimate and an amount higher than the 122 billion Australian dollars expected by analysts.

The report echoes data showing that construction work carried out fell 0.9% in the first quarter as bad weather and supply shortages dampened activity, particularly in the housing sector where construction costs construction grew at the fastest rate in 21 years.

All of this suggests some downside risk to gross domestic product (GDP) expected next week, for which analysts’ forecasts ranged from quarterly growth as low as 0.2% to 1.0%.

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

Retail sales rose a solid 1.2% in the quarter to a record high of A$93 billion in real terms, as consumers were not yet discouraged by soaring commodity prices.

However, much of this demand was met by an unusually strong increase in imports, meaning trade could subtract up to 1.5 percentage points from GDP in the quarter.

Given this brake, overall GDP could post weak growth, even if domestic demand has been very strong.

The Reserve Bank of Australia (RBA) was confident enough in the recovery to raise interest rates by a quarter point to 0.35% this month, the first hike since 2010, and to announce more there. ‘coming.

Markets are betting on another quarter-point hike to 0.60% in June and a series of 2.5% hikes by the end of the year.

Most economists believe that market prices are too aggressive as households hold record amounts of debt and are exposed to rising borrowing costs.

Still, hawks were emboldened this week when New Zealand’s central bank hiked 50 basis points to 2.0% and projected rates of 3.5% by the end of the year.

($1 = AU$1.4110) (Reporting by Wayne Cole; Editing by Christopher Cushing & Shri Navaratnam)

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