CHARTS: Doomsayers focusing on the Australian resource capex collapse are looking at the wrong picture


It’s amazing what a change of tone from the prime minister can do to views on the Australian economy from banking analysts and economists as well as the media.

In their latest Australian Equity Strategy note, Deutsche Bank strategists Tim Baker and Joseph Kim have shone a light today on what they say is the “real” situation in an outlook for capital expenditure in Australia.

Baker and Kim highlight that there “remains serious concern about the size of the hole left by falling resource capex”, and acknowledge it is a serious challenge. But addressing the question they are hearing from many that “surely the hole left by falling resource capex is simply too big to fill”, they say:

Part of this concern likely relates to a misreading of the ABS Capex Survey.

Taken literally, the survey pegs resource capex at 6½% of GDP in FY13 (the peak) – much larger than non-resource capex at only 4% of GDP. We’d be bearish if these were the actual relativities, but they are not. The true size of resources capex at the peak was 7½% of GDP, while other capex was 10%.

In other words, the capex survey covers the bulk of resources capex, but less than half of other business capex. Even at the FY13 extreme, resource capex was only half of the sum of other business capex and housing construction.

Thus, they say, concerns relate to a “misreading of the ABS Capex Survey”.

So the future is brighter than many are thinking. And how they are thinking.

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