Non-mining business investment has been "subdued" but is looking up, Reserve Bank Assistant Governor Christopher Kent told the Bloomberg Economic Summit in Sydney on Tuesday.
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"In nominal terms, non-mining business investment is at a very low level as a share of GDP, relative to its history," Mr Kent said. However, "the gradual pick-up in the growth of non-mining economic activity over the past year augurs well for investment".
Mr Kent said that subdued investment could be blamed on greater uncertainty and below-average confidence in the economy.
"However, a number of indicators suggest that uncertainty has declined to levels seen prior to the global financial crisis," said Mr Kent. "Also measures of business confidence have picked up over the course of the past year to be a bit above long-run average levels."
But improving business confidence would not be enough to spur investment if businesses' appetite for risk remained low, Mr Kent said. He added that the still-high level of the exchange rate may be weighing on investment of firms in the traded sector.
Looking ahead, Mr Kent said there were "tangible indications" that non-mining business investment would grow at a modest pace in 2014-15, especially if firms were more willing to take on risk. Cheap finance and strong demand in the non-mining sector would fuel business confidence, he said.
Ultimately, businesses which remained shy about expanding would pay the price, he said. "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."
In a question-and-answer session after the speech, Mr Kent said that businesses' "weak animal spirits will get much stronger".
"They can turn around quite quickly," he said.
Mr Kent also commented on the recent Australian Bureau of Statistics figure showing 121,000 jobs were created in August, bringing unemployment down to 6.4 per cent.
"We treat any given release with a deal of scepticism," he said. "You can't read too much into any part series in any given month."
He added that financial markets had been "remarkably stable" in light of recent global events, which was "surprising".
