Australia: Capex Q2 2016 & capex plans - Westpac
|Andrew Hanlan, Research Analyst at Westpac, lists down the first impressions of Australia’s Caped for Q2 2016 and capex plans.
Key Quotes
"For Q2
Total capex spend in the June quarter met our expectations, down 5.4% (Westpac f/c -5%, market -4%). However, the composition was more favourable than anticipated. Equipment spending rose by 2.8%, surprising to the high side ~ Westpac f/c flat and concerns of downside risks given the potential for firms delay spending ahead of the July Federal election. Building & structures fell by 10.6% vs Westpac f/c -8%.
By industry,
Mining, -16.1%
Services, +0.8%
Manufacturing, +12.9%, reversing a -10.3% in Q1.
Q2 GDP
Our Q2 GDP forecast remains 0.4%qtr, 3.2%yr. Recall that the outcome for Q1 was +1.1%qtr, 3.1%yr – a quarterly result inflated by a jump in exports and net exports. Notably, equipment spending, the input from the capex survey feeding into our GDP calculation, exceeded expectations. That acts to offset the downside risks that arose from weaker than anticipated construction work.
A GDP preview will be released tomorrow.
2016/17 CAPEX plans: upgraded
Estimate 3 was $105bn some 9% below Est 3 of a year ago. That is an improvement on Est 2 of -14.6% (as reported three months – but subsequently revised to -12.6%). Upward revisions are evident across the three broad industries.
Now, switching to calculations based on average realisation ratios (RRs) – which the official family prefer to the simple Estimate on Estimate numbers. For total capex plans for 2016/17, the implied figure is now -13%, an improvement on -21%.
Mining is -29%, up from -41% three months ago.
Services is -1%, up from -6%.
Manufacturing is 0 up from -7%.
Comments
Total capex plans for 2016/17 are understandably pointing to a marked decline in investment spending, dominated by the deflating of the mining investment boom.
For mining, the implied fall of around 30% rather than around 40%, brings the capex survey into line with our central case forecast. For services, while the immediate outlook is not strong, this update is a material improvement upon that of three months ago.
Note that Estimate 3 and following estimates are more reliable than Estimates 1 and 2, which have in the past been an unreliable guide to the ultimate outcome. Estimate 3 benefits from the fact that the previous year is now an actual, thereby assisting businesses in refining their capex plans for the year ahead.
For policy makers, this update suggests that the risks to their central case forecasts for business investment are now more evenly balanced rather than being skewed to the downside.”
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