SYDNEY (Reuters) – Australian business investment surged past expectations with the biggest jump in three years last quarter, and companies boosted spending plans for the coming year in a positive sign for the country’s economy.

Pedestrians walk in front of a crane and scaffolding on a construction site in central Sydney, Australia, May 31, 2018. REUTERS/David Gray/Files

During the December quarter, investment rose 2.0 percent to A$30.09 billion ($21.52 billion), the figures from the Australian Bureau of Statistics showed on Thursday, far outpacing expectations for a 0.5 percent increase.

The previous quarter was also revised higher to show no change to investment from a fall of 0.5 percent reported initially.

Importantly, spending on equipment, plant and machinery grew 0.7 percent and will prove a modest boost to economic growth in the final quarter of 2018.

Figures due next week are likely to show Australia’s A$1.8 trillion gross domestic product (GDP) expanded anywhere between 0.2 and 0.6 percent in the quarter.

Analysts were closely watching the spending outlook, which showed firms were more optimistic about the coming year.

The first estimate for 2019/20 came in at A$92.1 billion, 11 percent higher than the first estimate for 2018/19 with mining the biggest contributor to the increase, implying the sector will no longer be a drag on economic growth.

The latest estimate for 2018/19 came in at A$118.4 billion, about 4 percent higher than the previous estimate and at the top-end of analysts’ expectations of around A$115-A$119 billion.

“The RBA is likely to be relieved with the upgrade to investment plans,” ANZ economists said in a note.

“It is particularly important given the barrage of negative news over recent months, and suggests that despite the increase in downside risks for the economy, businesses remain relatively upbeat about the future.”

Business investment turned a corner in 2017 after years of decline caused by the end of a once-in-a-generation mining boom. As Australia tries to meet the needs of its ballooning population, public investment is in a strong upswing, with flow-through effects on the non-mining sector.

The revival has boosted policymakers’ optimism about the economy, with the Reserve Bank of Australia (RBA) forecasting above trend growth of around 3 percent this year.

Even so, a sharper-than-expected downturn in the country’s property market and subdued consumer spending are putting the brakes on economic growth.

($1 = 1.3980 Australian dollars)

Reporting by Swati Pandey; Editing by Shri Navaratnam


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