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.”
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