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Business investment expected to pick up

Economists expect business investment grew further in the early stages of 2022, providing a much-needed boost to next week’s economic growth figures for the March quarter.

This follows a disappointing set of construction figures on Wednesday, which places downside risks to already modest growth expectations when the national accounts for the March quarter are released on June 1.

For example, at this stage National Australia Bank economists are expecting the economy grew by just 0.2 per cent in the March quarter, a marked slowdown from the mammoth 3.4 per cent expansion three months earlier as the economy rebounded after the COVID-19 Delta variant lockdowns.

Construction work completed in the March quarter unexpectedly fell, and while household spending is expected to have held up, net exports are predicted to have been a large drag on growth.

The Australian Bureau of Statistics will release new private business capital expenditure on Thursday, which is expected to have risen 1.3 per cent in the March quarter, building on the 1.1 per cent gain in the December quarter.

The report also contains future investment intentions.

Early next week the ABS will release international trade, business profits and inventories, and government finances figures, which will allow economists to finalise their growth forecast for the March quarter.

A lame growth result in the March quarter comes before the likely impact from a steady rise in interest rates by the Reserve Bank of Australia this year as it tries to curb inflation.

Economists expect the RBA to raise the cash rate at its June 7 board meeting by between 25 to 50 basis points following on from the hike earlier this month, the first increase in over decade.

Addressing a conference on Wednesday, RBA assistant governor for economics Luci Ellis reiterated the central bank board has made it clear there will be more rate increases from here.

“We will be watching the data and the evidence very carefully and working out what the appropriate action is,” Dr Ellis said, but declined to speculate what the peak in the cash rate might be.

The cash rate rose to 0.35 per cent from a record low 0.1 per cent at the May board meeting and economists expect it could be over 1.5 per cent by early next year.

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