Business investment to drive economy
THE Reserve Bank of Australia (RBA) says business investment is expected to continue to expand while labour conditions remain tight.
In its quarterly statement on monetary policy released today, the central bank said growth in investment had been broadly based with forward indicators of investment intentions pointing to further growth.
“One important factor contributing to this has been the high level of commodity prices, which has stimulated investment in the mining sector and in resource-related manufacturing and infrastructure projects,” the RBA said.
“This is not surprising in an environment where businesses, with the exception of trade-exposed manufacturers, are generally experiencing good trading conditions, high levels of capacity utilisation and strong profitability, a situation which has also been reflected in a strong share market.”
The bank said favourable external conditions and high commodity prices had also contributed to a narrowing of Australia’s trade and current account deficits this year as a result of higher export prices and volumes.
The farm sector had also improved with output likely to be around the average of recent years compared with below average outcomes that seemed likely earlier in the year.
“The strong upswing in business investment seen in recent years continued in the first half of 2005, with real business investment increasing by 15 per cent over the year to the June quarter, underpinned by high capacity utilisation, healthy profits and falling prices for capital goods,” the RBA said.
“Conditions remain supportive for further growth in business investment with sound prospects for the domestic and world economies and a favourable funding environment.”
The bank said the economy was still operating at a relatively high level of capacity utilisation and that labour market conditions remained tight, with many businesses continuing to report considerable difficulty in attracting suitable labour.