Capex plans lift, but investment outlook remains grim

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Australian company’s have mildly increased their investment plans for this financial year from around $115 billion at the third estimate to 120.353 billion at the 4th estimate just released by the Australian Bureau of statistics.

That’s an improvement of 4% on the what business expected last quarter but still 20.9% lower that the 4th estimate of investment plans for the last financial year.

So it’s not a terrible number, indeed it’s on the positive side of neutral. It’s also somewhat encouraging, given that it is too early to see any material impact from the improved tone in the economy under Prime Minister Malcolm Turnbull.

Source: ABS

Investment plans are clearly moving in the right direction. However, over all the numbers show the investment pipeline is weak compared to the previous year. Mining is down 34.1% over the year but this estimate is actually 2.3% higher than estimate 3 for 2015-16. That slight pickup is mainly driven by an increase in mining building and structures which increased 2.8% while equipment, plant and machinery are a little lower with a fall of 0.7%.

But, overall plans for investment in equipment, plant and machinery was an 11.2% increase this estimate over the 3rd estimate. Given that mining plans for this sub-sector of CAPEX fell this implies some strength returning to the investment plans of the non-mining sector. Indeed, the ABS noted this improvement was itself driven by a 16.7% increase in investment plans from ‘other selected industries’

Source: ABS

This is clearly a good sign for the economy going forward if the non-mining sector is planning to increase investment.

But it’s also worth noting that this CAPEX survey does not capture all businesses in the economy. With the shift to services and other areas not captured this survey means means investment plans are much harder to detect.

The wash-up though is that CAPEX in the 2015-16 financial year is still set to undershoot the actual investment by business in the previous financial year by 24%. That means CAPEX will remain a drag on GDP growth for a number of quarters yet.

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