Following solid reads on retail sales and residential construction earlier this month, Australia will receive the latest piece of its Q2 GDP puzzle today with the release of private-sector capital expenditure (CAPEX) figures from the ABS.
While it’s not the largest piece of the puzzle, it’s still important nonetheless, providing markets with a snapshot of business investment in the past as well as what’s expected in the future.
In particular, there’ll be plenty of attention on the third estimate for CAPEX spend for the current 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. It therefore captures a majority of investment, but not all.
- In the March quarter, CAPEX rose by 0.4% to $29.813 billion, missing forecasts for an increase of 1%. From a year earlier, total investment increased by 3.7%.
- Expenditure on buildings and structures fell 1.3% to $16.15 billion, offset by a 2.5% increase in investment on plant, machinery and equipment which rose to $13.663 billion.
- The second estimate for CAPEX in the 2018/19 financial year came in at $87.7 billion, an increase of 5.7% on the first estimate. However, it fell short of the $90.5 billion level expected by economists.
- The second estimate for non-mining CAPEX came in at $61 billion. Expected spend across the mining sector stood at $26.8 billion.
- Today, economists expect both actual and expected CAPEX to have increased from the March quarter.
- Looking backwards, the median economist forecasts looks for a gain of 0.6% for the June quarter. Individual forecasts offered to Bloomberg range from a decline of 1% to an increase of 3%.
- The equipment, plant and machinery figure will feed directly into Australia’s Q2 GDP report next week.
- Looking ahead, the third estimate for 2018/19 CAPEX spend is expected to lift to $100.1 billion, above the second estimate of $90.5 billion. Individual forecasts range from an increase of $89 billion to as high as $118 billion.
- Estimates tend to be revised higher over time as operating conditions for businesses become more certain. Even still, early estimates, including this one, are often speculative and not indicative of actual CAPEX that’s likely to be seen.
- Earlier this month, the RBA noted that non-mining business investment was “expected to continue to grow over the forecast period, but at a more moderate pace than over the previous year”. It added that “growth in investment in machinery and equipment was forecast to pick up further, consistent with an ongoing economic expansion”.
- Given that view, there’ll be plenty of interest on the third estimate for non-mining CAPEX, classified in the release as manufacturing and “other” industries.
- Including mining sector expenditure, Westpac says an increase in the third estimate to $102 billion would be a “broadly neutral” result. It says anything below $97 billion would be deemed to be “soft” while an increase to $107 billion or more would be seen as “strong”.
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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