If history is any guide, non-mining business investment will soon pick up, says RBA assistant governor Christopher Kent.
Speaking at a Bloomberg conference in Sydney yesterday, Mr Kent said non-mining business investment has been subdued – with capacity utilisation “below average levels”.
“Meanwhile, over the past year or so there has been a gradual increase in the pace of growth of economic activity outside of the mining sector, owing in part to the very low level of interest rates,” he said.
Subdued investment outside the mining sector is consistent with a period of greater uncertainty and below-average confidence, Mr Kent said.
“However, a number of indicators suggest that uncertainty has declined to levels seen prior to the global financial crisis,” he said.
“Also, measures of business confidence have picked up over the course of the past year to be a bit above long-run average levels.”
This might not be enough to spur growth, however, if business appetite for risk remains low, he added.
“Nevertheless, there are tangible indications that non-mining business investment will grow at a modest pace this financial year. And if firms’ willingness to take on risks improves, investment could easily be stronger still,” said Mr Kent.
The “fundamental determinants” of investment are in place, he said: both internal and external finance are readily available at low cost, and demand has grown strongly across the non-mining parts of the economy in the past year.
“If history is any guide, eventually the period of elevated risk aversion is likely to give way to a concern among businesses, not of losses, but of lost opportunities and a loss of market share,” Mr Kent said.
Written by a staff reporter for investor daily.
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