The Australian Bureau of Statistics (ABS) has just released Australia’s June quarter private capital expenditure (CAPEX) report, and while the headline figure was ugly, the news for Australia’s upcoming Q2 GDP report, along with future investment, was good.
According to the ABS, CAPEX fell by 5.4% to $28.712 billion in seasonally adjusted terms, below expectations for a decline of 4.2%.
From the June quarter of 2015, CAPEX slumped by 17.4%, largely reflecting the unwinding mining infrastructure boom.
However, CAPEX on equipment, plant and machinery — a direct input into GDP — rose by a solid 2.8% to $12.199 billion. Despite the acceleration in investment, it was still 3.0% lower than the levels of a year earlier. The ABS notes that CAPEX in this category from “other” industries — largely services — rose by 2.6% while that for manufacturing firms jumped by 9.6%. Mining, down 3.5%, was the only sector to record a drop in expenditure levels.
Helping to explain the weakness in the headline figure, CAPEX on building and structures tumbled 10.6% to $16.513 billion during the quarter, leaving the drop from the same quarter in 2015 at 25.6%.
According to the ABS, spending from mining and other firms fell by 17.5% and 1.6% respectively. Manufacturing firms bucked the trend, recording an increase of 23.5%.
Here’s a look at actual CAPEX spend by category.
And for specific industry.
Importantly, the news on companies’ future investment plans was much better than expected, signalling that the outlook for business investment may be improving at a critical for Australia’s transitioning economy.
The third estimate for 2016/17 CAPEX spend jumped to $105.2 billion, well ahead of expectations for an increase to $97 billion.
Although 9.1% below the third estimate released for 2015/16 financial year, it was 15.2% above the second estimate offered in the March quarter.
By sector, estimate three for mining came in at $41.705 billion, up 14.5% from estimate two but some 24.2% below estimate three offered for the 2015/16 financial year.
Expected CAPEX for other industries rose to $54.997 billion, some 15.5% higher than the prior estimate. Crucially, particularly in terms of Australia’s economic rebalancing, it was 4.2% above the third estimate offered for 2015/16.
The news was even better for the manufacturing sector with the third estimate for 2016/17 rising to $8.471 billion, up 16.5% on the prior estimate. It was also 6.8% higher than the third estimate offered in 2015/16.
Combined, the estimates offered for manufacturing and other industries — a gauge on non-mining sector spend — now stand at $63.468 billion.
The chart below from the ABS shows the evolution in CAPEX estimates offered by firms. The hollow bars on the far right of the chart signify the first, second and third estimates for 2016/17 spend.
Writing before the release of the CAPEX report, Gareth Aird, senior economist at the Commonwealth Bank, suggested that a figure of more than $97 billion would imply an upgrade to investment intentions given estimates tend to be revised higher as firms become more certain on the business outlook.
“Policymakers will be looking, in particular, for a lift in non mining spending intentions in 2016/17 (more than $60bn),” said Aird. “A lift in non mining investment remains the missing ingredient in the Australian economic growth transition story.”
Based on the estimates received, it looks like that lift is occurring, and the outlook for business investment is brightening.