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Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities, notes that the Australia’s Q2 private sector capex at -0.5%/q fell short of market expectations at +1%, but the component that feeds into GDP””plant & equipment rose by +2.2%/q.

Key Quotes

“We had forecast +1%, so there is mild upside to GDP from plant and equipment. In Q3, Manufacturing +2.7%/q, mining -2.7%/q, services flat. The Q2 capex decline of -2.5% was revised to -0.8%.”

“Applying rolling 5yr average realisation ratios, the 4th estimate of adjusted spend for 2018/19 is $A121.5b, up from $A114.2b at the 3rd estimate and +2% on 2017/18 capex.”

“Overall, today’s data should please the RBA – the upgrade to capex intentions over 2018/19 is consistent with the Bank’s expectation for business investment and non-mining capex to pick up.”

“And with the Government’s books in good shape ahead of a likely federal election in May next year, opening the scope for fiscal stimulus, those positioning for downside, at least in H1’2019 could be disappointed.”