Australian businesses were spending big before lockdowns bit

SYDNEY, (Reuters) – Australian business investment jumped to two-year highs in the June quarter as firms ramped up spending plans for the year ahead, bullish plans that are now being threatened by coronavirus lockdowns across Sydney and Melbourne.

Figures from the Australian Bureau of Statistics out on Thursday confirmed the economy had a good head of steam in the second quarter before the lockdowns likely threw it into reverse.

Business investment rose 4.4% in the second quarter to a real A$32.7 billion ($23.76 billion), topping forecasts of a 2.5% rise and the highest amount since 2019.

That strength suggests the gross domestic product report due next week will show reasonable growth for the quarter, and a huge improvement from last year when lockdowns tipped the economy into recession.

Generous tax breaks helped boost spending on equipment by 4.3% to the highest since late 2012, while building investment rose a solid 4.6%.

Promisingly firms also lifted spending plans for the year to June 2022 by almost 13% to A$127.7 billion.

“Given that businesses were surveyed in July, after the current Delta outbreaks had emerged, the data is surprisingly upbeat,” said Sarah Hunter, chief Australia economist for BIS Oxford Economics.

“But risks to this outlook are clearly to the downside,” she warned. “Momentum in capex is likely to slow sharply, particularly in New South Wales and Victoria, and there are risks of a longer term drag if major projects are now abandoned as too risky.”

Analysts are certain the economy will shrink sharply this quarter, with much of retailing and services shut in Australia’s two most populous states, but are hopeful growth will rebound next quarter should restrictions ease as hoped.

For now, the outlook is uncertain with NSW reporting a record 1,029 new COVID-19 cases on Thursday and looking likely to remain locked down until at least October.