Kieran Davies, Research Analyst at ANZ, notes that Australia’s upgraded investment plans still point to sharply lower mining capex in 2016-17, where we calculate that the maximum drag on GDP is occurring now, and fairly flat non-mining capex.
Key Quotes
“Non-mining capex has picked up, but we caution reading too much into this given that the broader GDP measure of non-mining business investment has actually fallen recently. Solid equipment investment should add 0.1pp to Q2 GDP.
- Updated investment plans point to sharply lower mining capex and fairly flat non-mining investment. Firms revised up their total expected nominal business investment in 2016-17 from AUD91bn (previously AUD89bn) to AUD105bn (ANZ: AUD98bn; consensus: AUD97bn), with non-mining capex revised from AUD55bn (previously AUD53bn) to AUD63.5bn (ANZ: AUD60bn; no market forecast). There’s no unique way of adjusting for the bias in firms’ forecasts, but using the RBA’s approach, the numbers imply growth in capex in 2016-17 of: 1) total capex -11% (previous survey: -14%); 2) mining -25% (-29%); and 3) non-mining -2% (-3%).
- Investment continued to fall at a rapid rate in Q2. Total real capex fell by another 5.4% in Q2 (consensus: -4%; ANZ: -6.4%) and is 17% lower than a year ago. Non-residential construction fell by 11%, which was the largest fall since 2000. Equipment investment, which is the only series that feeds directly into GDP, rose by 2.8% (no consensus forecast; ANZ: 1%), which was the strongest increase since 2014 and 2011 before that. Equipment investment should add 0.1pp to Q2 GDP.
- Mining investment tumbled in Q2. Real mining investment fell 16% in Q2 and is now almost 60% lower than the 2012 peak. We estimate that on a GDP-consistent basis it has fallen from a record peak of 8% of GDP to about 3% in Q2 (by way of comparison, investment was 1.8% prior to the start of the boom in 2003).
- Non-mining investment continued to improve. Real non-mining investment rose by 2% in Q2, the third increase in the past four quarters. While we are encouraged by this improvement, the capex survey misses key industries like health and education, and the broader GDP measure of non-mining capex has actually fallen over recent quarters.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
USD/JPY holds positive ground around 151.50 following Japanese CPI data
The USD/JPY pair holds positive ground for the second consecutive day near 151.45 on Friday during the early Asian trading hours. The cautious approach from the Bank of Japan to keep monetary conditions accommodative exerts some selling pressure on the Japanese Yen.
AUD/USD depreciates on risk aversion amid a stronger US Dollar
AUD/USD extends its losses for the second successive session on Friday. However, market activity is expected to be subdued due to light trading on Good Friday. Meanwhile, the US Dollar strengthens as recent data indicates annualized economic expansion in the United States, driven by consumer spending.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Top 3 Price Prediction BTC, ETH, XRP: Retail watches from the sidelines with a bias for shorts
Bitcoin is showing strength as markets head into the Easter holidays. As it rises, altcoins are following suit, with Ethereum and Ripple posting almost similar gains. Meanwhile, there remains an unfilled CME Gap, with a lot of liquidity also resting above and below BTC price.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.