Australia’s Q1 private-sector capital expenditure (CAPEX) report will be released on Thursday, providing a snapshot of business investment in the past as well as what’s expected in the future. Parts of it will feed directly into Australia’s GDP report released next week.
Given the RBA expects non-mining investment will help support economic growth over the next couple of years, today’s report will likely help shift market pricing on the outlook for Australia’s cash rate.
Here’s the state of play.
- The CAPEX survey captures around 60% of business investment, excluding spending from industries such as agriculture, health and education. It therefore captures a majority of investment, but not all.
- In the December quarter last year, CAPEX grew by 2%. From a year earlier, CAPEX increased by 1.9%.
- Investment on buildings and structures rose 3.2% during the quarter, faster than the 0.7% increase in CAPEX on equipment, plant and machinery. The latter category feeds directly into Australian GDP.
- By sector, investment by selected industries — predominantly services — increased by 5.6% over the quarter. In contrast, CAPEX at mining and manufacturing firms slumped by 4.3% and 4.4% respectively.
- Looking ahead, the first estimate for CAPEX in 2019/20 came in at $92.1 billion, 11% higher than the first estimate offered for 2018/19, the current financial year.
- For other selected industries, estimate one for 2019/20 came in at $54.7 billion, up 6.8% from a year earlier. For mining and manufacturing, expected investment stood at $30.2 billion and $7.25 billion, up 21.4% and 5.2% respectively from estimate one for 21018/19.
- In today’s update, the median economist forecast looks for CAPEX to lift 0.5% in the March quarter. Individual forecasts range from a decline of 0.5% to an increase of 2.7%.
- The second estimate for CAPEX in 2019/20 is tipped to lift to $96 billion.
- Estimates tend to be revised higher over time as operating conditions for businesses become more certain. However, early estimates, including today’s, are often speculative and not indicative of actual CAPEX that’s likely to be seen.
- According to the Commonwealth Bank, any estimate above $98.5 billion should be regarded as an upgrade on the first estimate, and a good result. Anything less should be seen as a downgrade for investment intentions. Westpac Bank says a figure around $102 billion would be a positive result while anything around $92 billion should be regarded as soft.
- Capacity utilisation at firms, as measured by the NAB’s business survey, has softened in recent months, pointing to downside risks for investment in the year ahead. Business confidence and conditions have also weakened substantially from the levels seen in the middle of last year.
- Markets are likely to react to the second estimate for 2019/20 CAPEX spend. The equipment, plant and machinery figure for actual investment will help to shape expectations for Q1 GDP.
The CAPEX report will be released at 11.30am AEST.
Business Insider will have all the details and implications once the report is out.
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