Australia: Total capex spending edged higher, up 0.3% in March quarter - Westpac

Andrew Hanlan, Senior Economist at Westpac, explains that Australian private business capex spending edged higher in the March quarter, but the trend still remains lower as work on remaining gas projects under construction is progressively completed during 2017 and into 2018.

Key Quotes

“The latest ABS survey of private business CAPEX provided an update on actual spending for the March quarter 2017 and the 2nd estimate of plans for 2017/18, as well as the 6th estimate of plans for 2016/17. The survey was conducted during April and May.”

“The mining investment downturn continues to dominate the investment outlook depicted in this survey.”

“In the March quarter, total capex spending actually edged higher, up 0.3%, in line with expectations (mkt median and Westpac 0.5%).”

“While this is an improvement on the recent string of negatives the detail was somewhat disappointing.”

“Equipment spending surprised to the downside with a flat outcome, -0.1% vs f/c +1.2%. This is at odds with strength in capital imports.”

“Building & structures advanced by 0.7%, similar to the 1.2% rise reported in the Construction Work survey.”

“By industry: services disappointed in the quarter, down 0.5%; mining edged higher, 0.4%, following ten consecutive quarters of decline; and manufacturing advanced, 6.6%.”

“Estimate 2 for 2017/18 is $85.4bn, -6.4% vs Est 2 a year ago, a decline of $5.9bn. Mining is the source of weakness, with Est 2 on Est 2 at -22%, -$7.9bn. Services is +6%, and manufacturing is -12%.”

“Shifting to calculations based on average realisation ratios (RRs), as preferred by the official family, Est 2 implies that capex will fall by -9% this year. This is a slight improvement on the -11% implied by Est 1 as reported 3 months ago. The upgrade, in part flattered by base effects, is centred on services - which will be welcomed by policymakers.”

“By industry, results from average RR calculations are: mining -26%; services +1.5% vs -3% 3 months ago; and manufacturing -17%.”

Estimate 6 for 2016/17 is $112.6bn, -11% vs Est 6 a year ago