Australia will receive the latest piece of its GDP jigsaw puzzle today with the release of capital expenditure (CAPEX) figures for the September quarter.
It’s a report that captures private sector business investment, looking not only backwards but also where it’s heading.
After watching retail sales volumes and construction work done decline sharply last quarter — two reports that feed into Australian GDP — there’ll be plenty of attention on today’s release with another weak result likely to increase the risk that the Australian economy contracted in the September quarter.
Here’s the state of play:
- The CAPEX report is unique in the fact that it’s where spending is heading, rather than where it’s been, that generates the most acute reaction from financial markets.
- Keeping this in mind, the fourth estimate of 2016/17 CAPEX spend — for this financial year — will be the first thing markets will be looking for when the report is released.
- Previously it came in at $105.2 billion, some 15.2% higher than the previous estimate but down 9.1% on the third estimate offered for the prior financial year.
- Today, the median forecast looks for an increase to $110 billion. Of the 15 economists polled by Bloomberg, estimates range from $107 billion to as high as $115 billion.
- According to economists at the Commonwealth Bank, $110 billion will be deemed a “zero change” result once realisation ratios are taken into account. This ratio is actual expenditure divided by expected expenditure based on historic patterns, and has a tendency to rise as certainty among firms improves.
- Essentially, if the fourth estimate comes in less than $110 billion, it will likely be interpreted as a weak result. Anything higher will be deemed the opposite.
- The breakdown between mining and non-mining sector estimates will also be watched closely for signs as to how Australia’s economic transition is progressing.
- As for headline Q3 CAPEX — where investment has been — it’s expected to decline by a further 3%, following a 5.4% drop in the June quarter.
- The equipment, plant and machinery figure will be eyed closely as this feeds directly into quarterly GDP. Any weakness in this reading will increase the odds that the Australian economy contracted last quarter, something that is now being discussed as a distinct possibility.
- It’s also worthwhile noting that the CAPEX survey only captures around 60% of total business investment, excluding industries such as education, health and agricultural, as well as from the public sector.
The report will be released at 11.30am AEDT.
Business Insider will have full coverage as soon as hits the screens.