Australia will receive the latest piece of its Q1 GDP puzzle today with the release of private-sector capital expenditure (CAPEX) figures for the March quarter.
While not the largest piece of the puzzle, it’s important nonetheless, providing markets with a snapshot of prior investment along with intended investment ahead.
It also carries the potential to generate short-term volatility across Australian financial markets, providing an opportunity for traders to both enter and exit positions.
In particular, there’ll be plenty of attention on the second estimate for CAPEX spend in the upcoming financial year.
Given the RBA is banking on a lift in non-mining investment to help bolster economic growth over the next couple of years, it’s likely this figure will drive movements in financial markets following the report’s release.
Here’s the state of play.
- The CAPEX survey captures around 60% of total business investment, excluding spending from industries such as agriculture, health and education.
- In the December quarter last year, CAPEX fell 0.2% to $29.57 billion, missing forecasts for an increase of 1%. From a year earlier, total investment increased by 4%, the largest increase in five years.
- Spending on buildings and structures fell 2.1% to $16.2 billion, partially offset by a 2.2% increase in investment on plant, machinery and equipment which rose to $13.4 billion.
- The first estimate for CAPEX in the 2018/19 financial year came in at $84 billion, 3.5% higher than the fist estimate offered for the prior year. It was the first time since the 2012/13 financial year that the first estimate was higher than that offered a year earlier.
- The first estimate for non-mining CAPEX came in at $58.2 billion. Expected spend across the mining sector stood at $25.8 billion.
- Today, economists expect both actual and expected CAPEX to increase from the prior quarter.
- Looking backwards, the median economist forecasts looks for an increase of 1% for the quarter. Individual forecasts offered to Bloomberg range from a decline of 1% to an increase of 3%.
- While there is no forecast for spending on equipment, plant and machinery, economists at ANZ Bank expect an increase of 1.8%.
- That’s an important figure to watch as it will flow directly into Australia’s Q1 GDP report next week.
- ANZ says spending on buildings and structures is likely to be weak given non-residential building was soft during the quarter.
- Looking ahead, the second estimate for 2018/19 CAPEX spend is expected to lift to $90.5 billion, above the first estimate of $86.5 billion. Individual forecasts range from an increase of $63 billion to as high as $96 billion.
- Estimates tend to be revised higher over time as operating conditions for businesses become more certain. Even still, early estimates, including today’s, are often speculative and not indicative of actual CAPEX that’s likely to be seen.
- Earlier this month, the RBA noted that an “increasing proportion of businesses have been reporting that constraints on output were coming from premises and plant limitations” despite non-mining business investment “growing strongly”.
- Given that view, there’ll be plenty of interest on the second estimate for non-mining CAPEX, classified in the report as manufacturing and “other” industries.
- ANZ says a figure above $64 billion would be a strong result while anything below $61 billion would be regarded as soft. The Commonwealth Bank shares a similar view, suggesting anything above $63 billion would be an upgrade on the first estimate and a good outcome.
The report will be released at 11.30am AEST.
Business Insider will have all the details, and implications, once it hits the screens.
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