Victoria is the centre of an investment surge so big it is rendering forecasts in the federal budget obsolete.
Nationwide investment in plant and equipment and buildings surged 3.3 per cent or $764 million between March and June according to the Bureau of Statistics, but all of it was accounted for by an astonishing jump in investment in Victoria of $800 million - a jump of 20 per cent.
Private capital expenditure in Victoria is its highest on record, even after adjusting for inflation.
Investment fell in NSW, Queensland and South Australia, and jumped 6 per cent in Western Australia.
Private forecasters had been expecting nationwide collapse in investment of 8 per cent over the quarter and the Budget had forecast a further collapse of 18.5 per cent this financial year...
James McIntyre of the Commonwealth Bank was one of the economists who predicted an 8 per cent collapse. Yesterday he hailed the Victoria-centred rebound in investment as a "nail in the coffin" of the Treasury's budget forecast of an 8.5 per cent unemployment rate.
"Investment has gone from being our Achilles heel to the best foot we can put forward," he quipped.
ICAP Securities economist Adam Carr said until recently business investment had been the weakest link in the Australian economic story.
"It’s not looking so weak anymore, and this is during a period of significant uncertainty," he declared. "If the worst of the global financial crisis doesn't induce a significant drop in investment, I don’t think a global recovery will."
Importantly, business expectations for investment during the current financial year are now 15.4 per cent higher than they were during the framing of the May Budget, making it likely that business investment will climb to a new all-time high this financial year instead of sliding 18.5 per cent as the Budget predicted.
The survey took place before last week's announcement of the giant $50 billion liquefied natural gas export agreement with China and before recent strong news on construction and retail spending, suggesting that further upgrades in investment spending are on the way.
The results will feed in to next Wednesday's June quarter economic growth figures which are now less likely to be negative and less likely to portend a so-called "technical recession".
Late yesterday Westpac upgraded its estimate of June quarter economic growth from 0.4 per cent to 0.7 per cent. JP Morgan upgraded its estimate to 1 per cent.
Deutsche Bank economist Tony Meer credited Budget tax breaks for investment with the turnaround saying, "this is just further evidence, if any is needed, that policy has worked exactly was was planned and hoped."
The Commonwealth Bank's James McIntyre raised the prospect of the surge in investment would being too strong saying it was "coming as the impact of the government's infrastructure stimulus package is only beginning to be felt." .
"An earlier than expected recovery in mining and broader business investment could exert demand on the economy’s resources at the same time as the stimulus packages main boost," he warned.
Released as Reserve Bank staff finalised the briefing papers for next week's board meeting, the news increases the likelihood that the board meeting will consider bringing forward expected interest rate hikes.
David De Garis of the National Australia Bank said even the Reserve most-recent more-optimistic economic forecasts looked outdated.
"If there is a larger-than-expected GDP outcome next week, then the timetable for interest rate hikes may well be dragged forward," he said, adding that a hike before the end of the year looked "increasingly likely".
Financial markets are pricing in an even-money chance of a rate hike in November, followed by a series of hikes taking the Bank's cash rate from 3 per cent to 5 per cent by the end of next year.
Published in today's SMH and Age