Australia: Q4 CAPEX suggests upturn in business investment - Westpac
|Andrew Hanlan, Research Analyst at Westpac, notes that the ABS survey of Australian business capex plans suggests that the upturn in business investment which emerged in 2017/18 will extend into 2018/19.
Key Quotes
“The mining investment wind-down drag is greatly diminished and non-mining investment is increasing at a near double digit pace centred on construction.”
“For Q4, capex slipped, declining by 0.2%, which was weaker than anticipated (market median 1.0% and Westpac 0.8%).”
“Key to the slight dip in Q4 was mining capex, which still has a little further to fall as work on the 3 remaining gas projects under construction - Wheatstone, Prelude and Inpex - is progressively complete. Work is expected to be finished by mid-2018.”
“Mining capex fell by 4.7% in Q4, with the detail reporting a sharp 15% drop in building & structures, partially offset by a 23% jump in equipment. The final fit out of projects near completion can see a spike in equipment spending.”
“Capex spend across the non-mining economy increased further in Q4, +1.8%qtr, +10.4%yr, led by construction work. This is consistent with other evidence that non-residential building work is increasing strongly to meet the needs of a growing population, particularly in Victoria.”
“By asset class for total capex in Q4, equipment spending increased by 2.2% while building & structures fell by 2.1%.”
“Estimate 5 for 2017/18 capex plans is $114.6bn, 2.5% above Est 5 a year ago. This is a slight upgrade on +1.6% for Est 4. The upgrade centred on the mining sector.”
“For the 2017/18 year, the survey suggests that mining capex will decline by around 8%, -$3.4bn. This is more than offset a lift in non-mining capex spending, +8%, up $6.2bn.”
“For 2018/19, Estimate 1 (which can be unreliable) is $84.0bn, which is 3.5% above Est 1 a year ago. This is the first positive Est 1 on Est 1 comparison since 2012/13.”
“Mining capex falls further, down 5% on an Est 1 on Est 1 basis, as work on the gas projects is wound-up.”
“Offsetting this weakness is a further lift in non-mining capex, up 8% on an Est 1 on Est 1 basis. Focusing on services, the figure is also +8%, with the mix a +13.5% for building & structures and a +2.0% for equipment.”
“Note, the capex survey has its limitations. The survey provides only partial coverage of total business investment, thereby overweighting the mining sector. Preliminary estimates (particularly Est 1 and Est 2) of capex plans are, by their nature, an inaccurate guide to the ultimate outcome - the extent of the error varies by asset, by industry and from year to year.”
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