If the early indicators are anything to go by, the risks for Australia’s March quarter GDP figure appear to be building to the downside.
Retail turnover missed expectations as did construction work done. Now you can add business capital spending to that list.
According to data released by the Australian Bureau of Statistics (ABS), private capital expenditure (CAPEX) fell 5.2% to $30.613 billion in the March quarter after seasonal adjustments, missing expectations for a smaller decline of 3.5%.
Spending on equipment, plant and machinery – a direct GDP input – dipped 0.5% to $11.753 billion, beating expectations for a decline of 2%.
Elsewhere expenditure on building and structures was horrible, slumping 7.9% to $18.86 billion, well below forecasts for a decline of 3.0%.
Although the news on March quarter expenditure was mixed, there was better news when it came to the outlook for business investment.
The second estimate for 2016/17 CAPEX came in at $89.2 billion, some 6.3% higher than the first estimate. Markets were expecting an increase to $86.7 billion.
Although a solid pickup from the initial estimate, it was still 14.6% below the second estimate offered for the 2015/16 financial year, thanks largely to the unwinding mining CAPEX boom.
By sector, the second estimate for mining CAPEX in 2016/17 came in at $36.015 billion, 5.5% higher than the initial estimate. Although a noticeable pickup, it was still 32.1% below the second estimate offered in 2015/16.
It easy to see where term “mining CAPEX cliff” comes from.
However, the news was not all bad.
In what is an encouraging sign for Australia’s economic transition, the second estimate for 2016/17 spending in other industries rose 6.2% to $45.913 billion, some 2.0% above the second estimate offered in 2015/16.
There was also good news when it came to the outlook for spending in the manufacturing sector with the second estimate for 2016/17 rising 11.3% to $7.303 billion, a jump of 13.9% from the second estimate offered in the 2015/16 financial year.
Although promising, the expected increase in non-mining investment still has a long way to go before it can offset the expected decline in mining investment.
The reaction to the data has been muted, particularly compared to prior reports, with the figures merely confirming what the markets already knew: business investment is weak, and will likely remain so in the years ahead.
As a consequence, the report has few — if any — implications for monetary policy moving forward.