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28 Feb 2014
Flash: Australia's capex a setback for RBA - Nomura
FXStreet (Bali) - According to Charles St-Arnaud and Martin Whetton, Economist and Strategists at Nomura, yesterday's capex report in Australia has some severe negative connotations.
Key Quotes
"The report showed that the positive surprise in Q3 was temporary and that the peak in mining investment may well have passed as capex intentions now point to a decline in mining investment in both 2013-14 and 2014-15."
"The report also shows that that the contribution to growth from investment will be more negative in Q4 and may lead to weaker than expected GDP growth. Moreover, the expected decline in capex over the next two years means that business investment is likely to be a small drag to growth next year and the next, in our opinion. Disconcertingly, based on completion ratios for the past three years, we believe the fifth estimate suggests that there are downside risks to investment expectations for 2014-15."
"Moreover, with Qantas having downgraded its capex plan, we should expect the next capex intentions report to be weak. The report does not change our view that capex will be a small drag on growth in coming quarters, but it may give the Reserve Bank of Australia (RBA) pause after its more upbeat than expected economic outlook after the February meeting; today‟s report should modify its views somewhat. The report also differs from the most recent NAB business expectations and confidence survey, which pointed to some growth by mid-year."
"We do not expect the RBA to change its policy settings from a neutral bias because of this news, but it will be a setback for its growth expectations and those in government who had perhaps banked on some return to growth to stabilise revenues."
Key Quotes
"The report showed that the positive surprise in Q3 was temporary and that the peak in mining investment may well have passed as capex intentions now point to a decline in mining investment in both 2013-14 and 2014-15."
"The report also shows that that the contribution to growth from investment will be more negative in Q4 and may lead to weaker than expected GDP growth. Moreover, the expected decline in capex over the next two years means that business investment is likely to be a small drag to growth next year and the next, in our opinion. Disconcertingly, based on completion ratios for the past three years, we believe the fifth estimate suggests that there are downside risks to investment expectations for 2014-15."
"Moreover, with Qantas having downgraded its capex plan, we should expect the next capex intentions report to be weak. The report does not change our view that capex will be a small drag on growth in coming quarters, but it may give the Reserve Bank of Australia (RBA) pause after its more upbeat than expected economic outlook after the February meeting; today‟s report should modify its views somewhat. The report also differs from the most recent NAB business expectations and confidence survey, which pointed to some growth by mid-year."
"We do not expect the RBA to change its policy settings from a neutral bias because of this news, but it will be a setback for its growth expectations and those in government who had perhaps banked on some return to growth to stabilise revenues."