Austalia’s second quarter private New Capital Expenditure (Capex) has just been released with the fall of 4.0% in Q2 sharply lower than the 2.5% analsyt expectations. The headline number is a terrible miss.
But, it’s not all bad news because the ABS also reported business plans for capital expenditure over the current financial year were upgraded by a little less than 10%.
The ABS said (emphasis added): “Estimate 3 for total capital expenditure in 2015-16 is $114,814m. This is 23.4% lower than Estimate 3 for 2014-15. The main contributor to this decrease is Mining (-37.1%). Estimate 3 is 9.9% higher than Estimate 2 for 2015-16. The main contributor to this increase is Other Selected Industries (+17.2%).”
On forex markets Aussie dollar traders initially sold the Aussie lower on the big headline miss but have bought it back on the upgraded outlook for the future of Capex.
That’s because while the 4% decline will hurt GDP calculation it’s the future the RBA will be interested in. So, looking at the breakup of Capex plans:
- Building and Structures plans have been increased by 7.4% over the previous estimate for 2015-16 driven by ‘other selected industries.
- Equipment, plant and machinery plans are 15% higher than the second estimate for this financial year again driven by ‘other selected industries’.
Looking at the sectoral plan breakup for Capex it looks clear that non-mining businesses in the economy are looking to invest more than they had previously signalled.
- Mining is even slightly higher than the previous estimate with building and structures up 1.5% and equipment, plant and machinery plans up 4.8%.
- Manufacturing has some big increases in both buildings and equipment, plant and machinery which have increased 24.6% and 22.4% over the second estimate.
- Other selected industries also saw some large upward revisions to investment plans with a 18.4% increase in buildings and structures and a 16.1% uplift in plans for investment in equipment, plant and machinery.
What’s interesting in the plans, as the ABS points out, is the increase in “other selected industries”. These include utilities, construction, wholesale and retail trade, transport and postal, information and media, finance and insurance, rental and real estate, professional and scientific services and areas including accommodation, administration, and the Arts.
So, if business delivers on its plans it would seem fair to say that mining has left the economy with a huge hole to fill. The “capex cliff” is still there but overall the picture is better for business investment – and the economy as a result – than it was six months ago.