Australian CAPEX survey to provide some further guidance on growth prospects - Westpac

Andrew Hanlan, Senior Economist at Westpac, explains that the Australia’s ABS survey of private business investment plans, the CAPEX survey, will provide some further guidance on growth prospects.

Key Quotes

“The March quarter edition will be released on June 1, including Estimate 2 for 2017/18 and Estimate 6 for 2016/17, as well as actual capex spending for Q1 2017.”

“Capex trends have been dominated of late by the downturn in mining investment. The survey reported falls in the total value of capex spending in 2013/14, -1.6%; 2014/15, -4.8%; and 2015/16, -15.3%; as well as the prospect of a sharp fall in 2016/17.”

“We anticipate the broadly neutral outcome of around $86bn.”

“Although, we are mindful that the headline number which will hit the screens is the -6% (compared with the -3.9% for Est 1 on Est1). Markets may interpret this as being disappointing.”

“The "less weak" scenario is a stretch in our view. The key point is that for the 2016/17 year, the upgrade between Est 1 and Est 2 was unusually large, at 8.8%, and is unlikely to be repeated.”

“Under the "broadly neutral" scenario, an Est 2 of $86bn for 2017/18 is a 6.5% upgrade on Est 1 of $80.6bn. Such an upgrade is a little above the average of the past five years, of 5.7%.”

“As to the "weaker" scenario, we assess that the balance of evidence points to a stronger result than this. Global growth has improved, so too business confidence and domestic business conditions appear to have strengthened (as suggested by the private business surveys).”

“Policy makers will be particularly interested in the service sector capex plans for 2017/18, looking for any evidence of an improvement in investment intentions across the broader economy. To date, non-mining investment remains at relatively low levels.”

“Business investment forecast

Our central case forecast is for business investment (as estimated in the national accounts) to be broadly flat in 2017/18, after a 5% fall in 2016/17 and a 10% decline in 2015/16.

Notably, the mining investment drag is diminishing as work on the remaining gas projects under construction is progressively completed. For 2017/18, we expect mining investment to fall by around 18%.

Non-mining investment is expected to increase by around 4.5% in 2017/18, after a 2% rise in 2016/17. Of the 4.5% rise, the majority is explained by assets (computer software) and sectors (health, education and agriculture) which are not included in the limited capex survey.”