Australia will receive the latest piece of its Q3 GDP jigsaw puzzle today with the release of private sector capital expenditure (CAPEX) figures from the ABS.
The CAPEX report is unique that it measures both investment in the past and what’s expected in the future.
Given the RBA is banking on a lift in non-mining investment to help bolster economic growth over the next couple of years, there’ll be plenty of attention on the fourth estimate for CAPEX spend for the current financial year, especially for Australia’s non-mining sectors.
After some disappointing readings on retail sales and construction activity in the September quarter, a downside miss today could see growth expectations scaled back even further ahead of Australia’s Q3 GDP report release next week.
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. It therefore captures a majority of investment, but not all.
- In the June quarter, CAPEX fell by 2.5%, missing forecasts for an increase of 0.6%.
- Expenditure on building and structures made up the vast bulk of the decline, sliding 3.9%. Investment on equipment, plant and machinery — a direct GDP input — also fell by 0.9%.
- By sector, CAPEX at mining firms slumped 7.2%. Expenditure at other select industries fell by 1%, partially offset by a 2.7% increase among manufacturing firms.
- The third estimate for CAPEX in the 2018/19 financial year came in at $102 billion, 1.1% below the third estimate offered for the prior financial year.
- Expected investment at other selected industries — largely services — stood at $61.5 billion unchanged, from the third estimate of a year earlier. This cast some doubt as to whether the recent uptrend in investment at services firms will continue in the coming years.
- Expected manufacturing CAPEX rose to $8.7 billion, 3.1% higher than the third estimate for 2016/17.
- Mining firms said they expect to invest $31.9 billion this year, down 4.2% from the third estimate of the prior financial year.
- Today, economists expect both actual and expected CAPEX spend to increase in the September quarter.
- The median forecast for Q3 CAPEX looks for an increase of 1%.
- For plant, machinery and equipment investment, a direct input into Q3 GDP next week, ANZ is looking for a quarterly increase of 2.5%.
- In terms of expected investment in the current financial year, markets are looking for the fourth estimate to be revised up to $108.5 billion.
- Expected CAPEX tends to be revised higher over time as operating conditions become more certain for businesses.
- Westpac says a reading above $112 billion would be regarded as good, while a figure below $104 billion would be disappointing.
- For expected non-mining CAPEX — including both services and manufacturing — ANZ sees the fourth estimate being revised up to $77 billion. It says a figure over $80 billion will be regarded as strong result, while a sub $75 billion level would be deemed to be weak.
- In November, the RBA said that “business conditions are positive and non-mining business investment is expected to increase”, adding that “expenditure on machinery and equipment was also expected to rise” in the years ahead.
The CAPEX report will arrive at 11.30am AEDT.
Business Insider will have all of the details as soon as the report is released, including any financial market reaction.
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