Fed: Dollar and rates hitting business investment: Access

AAP General News (Australia)
02-02-2004
Fed: Dollar and rates hitting business investment: Access

Eds: Embargoed to 0001 (AEDT) Monday, February 2, 2004



By Shane Wright

CANBERRA, Feb 2 AAP - The surging Australian dollar and the prospect of higher interest
rates are set to hit business investment, a new survey has found.

Access Economics' investment monitor said the number and value of business investment
projects were dropping with a fear they may fall even further in the second half of this
year.

The survey of major capital investment projects found there were 96 new proposals on
the books - a three-year low.

The value of possible projects was down 6.2 per cent to $105 billion.

The value of committed projects fell 11.9 per cent in the December quarter, and were
23.2 per cent down on the same level in the December 2002 quarter.

Access said after two years of a relatively low Australian dollar and good commodity
prices, the situation was turning for many businesses.

It said the interest rate hikes of November and December by the Reserve Bank board,
and the threat of more, were playing on the minds of investors.

The stronger dollar, pushed up in part by Australia's higher interest rates, was feeding
into those investment concerns.

"There are some key risks on the horizon for business investment, notably recent interest
rate rises and the surging Australian dollar," it said.

"There appears to be enough petrol in the tank for investment to get through the first
half of 2004 in pretty good shape, though clearly there are now some macro risks to the
outlook beyond that."

The Reserve board meets for the first time this year on Tuesday, with analysts largely
believing it will hold back from another interest rate rise.

Access said many investors were looking at the board, and whether the Australian dollar
may climb even further.

"Many proponents with projects undergoing feasibility studies are waiting to see where
the Australian dollar heads next, while in some cases higher commodity prices have offset
the negative effect of the higher Australian dollar so remain viable," it said.

Access said Western Australia had enjoyed a large number of mining projects in recent
years, with many of those now almost complete.

It said NSW, with much of its planned investment in infrastructure and commercial building,
would weather any downturn in investment relatively well.

It warned Victoria and South Australia, where manufacturing investment would be at
risk from a stronger dollar and higher interest rates, were most exposed to a downturn.

The single largest investment project continues to be the Gorgon joint venture in WA,
valued at $11 billion.

Other major investors include BHP Billiton ($9.7 billion), Qantas ($7.5 billion) and
Telstra ($6 billion).

AAP sw/jv/jlw

KEYWORD: ACCESS (EMBARGOED)

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