Business boost for Chalmers signals strong GDP as investment rises

Businesses have lifted their capital expenditure by the fastest pace in almost four years in a sign that strong economic growth will be revealed in next week’s national accounts.

Treasurer Jim Chalmers, left, and Defence Minister Richard Marles. ‘These figures show not only is investment in priority areas like data centres and cleaner and cheaper energy growing, it’s growing even faster than anticipated,’ the Treasurer said on Thursday. Picture: NewsWire / Martin Ollman

Businesses have lifted their capital expenditure by the fastest pace in almost four years – driven by data centre fit-outs – in an ­indication, economists argue, of strong GDP growth in next week’s national accounts.

While government spending is expected to remain at a high level, the private sector increased capital expenditure by 6.4 per cent in the September quarter to about $49bn, with capital expenditure plans suggesting investment levels will not just be maintained, but will grow even stronger.

Jim Chalmers said the increase was “very welcome” as part of his attempt to transition public spending-driven economic growth over to the private sector.

“These figures show not only is investment in priority areas like data centres and cleaner and cheaper energy growing, it’s growing even faster than anticipated,” the Treasurer said.

Across industries, information media and telecommunications recorded the largest rise of any category – up 40.7 per cent in the quarter and up 70 per cent in the last year.

By type of investment, spending on new machinery was strongest, lifting 11.5 per cent in the quarter – the biggest gain in more than two decades since the December quarter of 2004.

Westpac economists Mantas Vanagas and Pat Bustamante said they expected “upside risk” to GDP figures next week from the strong private expenditure, which will likely be matched by still high public spending.

“Looking ahead, capital expenditure plans not only suggest that this level of investment will be maintained, but that there could be more growth over the ­remaining three quarters of financial year 2026,” the economists said.

The chief executive of one of the largest data centre developers, NEXTDC’s Craig Scroggie, said his company had invested $2bn in data centres in the last ­financial year and was planning to spend between $2bn and $3bn this financial year.

“If you look at all the companies investing in this space – including Microsoft and Amazon – the numbers are going to get big,” Mr Scroggie said.

“When you combine what we invest with what others invest in data centres, you could end up with the scale of about half of Australia’s largest infrastructure project – the NBN,” he said.

Inflationary pressures could prove to be an issue for contractors, however.

“I do think the price pressures exist,” Mr Scroggie said, “But the contractors will include contingencies for this.”

The test now will be whether competing public spending ex­acerbates price pressures.

AMP economist Diana Mousina said the transition from ­public spending to private spending would be watched closely.

“Public spending will make a smaller contribution to GDP growth from 2026, hopefully at a time that the private sector is improving from stronger consumer spending, residential construction and business investment,” Ms Mousina said.

“Softer public spending growth should help to ease some of the bottleneck pressures in construction, which should allow residential construction to increase and help the labour market to be in better balance.”

Economists have raised concerns about the continued high level of government spending and its impact on inflation.

The Reserve Bank has warned about capacity pressures in the economy, noting no economic ­recovery in the past 40 years has started with so little spare ­capacity as the current economy.

“The other factor to consider is how public sector wages have added to wages inflation, which translate into services inflation,” Ms Mousina said.

“Stronger public wages growth is one reason behind higher total wage gains in recent years, but not the main factor.

“Broad-based wage growth has been underpinned by a tight labour market, which has given employees and job switchers greater bargaining power to ­secure pay increases,” she said.