Australia will receive the latest piece of its Q4 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 that’s occurred in the past and what’s expected in the future.
After some weak readings on retail turnover and construction spending during the December quarter, adding to downside risks for economic growth, the report is likely to attract more interest than usual.
In particular, the first estimate for CAPEX spend in the next financial year, especially for Australia’s non-mining sectors, will garner plenty of attention given the RBA expects non-mining investment will help to underpin economic activity in the years ahead.
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 most investment, not all investment.
- In the September quarter, CAPEX fell by 0.5%, leaving it down 0.6% from a year earlier.
- CAPEX on buildings and structures slumped by 2.8% during the quarter, partially offset by a large 2.2% increase in plant, equipment and machinery investment. The latter category feeds directly into Australian GDP.
- By industry, investment from mining firms fell 2.7% from the prior quarter. It increased by 2.7% at manufacturers and was relatively unchanged at other selected industries, predominantly services firms.
- Looking ahead, the fourth estimate for CAPEX spend in 2018/19 jumped to $114.1 billion, up from the third estimate of $102 billion offered three months earlier.
- Estimates for non-mining CAPEX were revised sharply higher to $80.7 billion, some 13% more than the figure offered in the June quarter.
- Today, economists expect CAPEX in the December quarter to increase by 1%, according to the median forecast offered to Bloomberg.
- Looking ahead, the first estimate for CAPEX in 2019/20 is tipped to rise to $90.5 billion, up 11% from the first estimate for the current financial year.
- Expected CAPEX tends to be revised higher over time as operating conditions become more certain for businesses. As such, that means initial estimates are often unreliable. Not that markets will care, at least initially.
- According to Westpac Bank, a first estimate of around $92 billion for 2019/20 would be a “neutral” result for investment in the coming year. A result of $87 billion would be seen as weak while a figure of $97 billion would be deemed to be strong.
- Within the headline figure, the Commonwealth Bank says a non-mining first estimate of $65 billion should be regarded as strong.
- For the fifth estimate for CAPEX in the current financial year, the CBA says a figure in excess of $120 billion would be decent result, and an upgrade from the fourth estimate. Anything less would be deemed to be disappointing. Westpac says a figure of $118 billion would be a par result.
- Of note, the December quarter CAPEX survey was conducted in January and February, coinciding with a steep fall in Australian business conditions and confidence in the NAB survey. That suggests there may be some downside risk for investment intentions.
The CAPEX report will be released at 11.30am AEDT.
Business Insider will have all of the details once the numbers hit the screen.
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