Australia: Q1 CAPEX point towards upturn in business investment – Westpac

Andrew Hanlan, Research Analyst at Westpac, explains that the ABS survey of Australian business capex plans suggests that the upturn in business investment which emerged in 2017/18 will extend into 2018/19, although uncertainty remains around the pace of the uptrend.

Key Quotes

“The key take-out from this update, the second read on capex plans for 2018/19 is a little less upbeat than the initial estimate, but not significantly so. The key themes, supported by other indicators, remains: a greatly diminished drag from the mining sector and an upswing in non-mining investment led by construction.”

“In the March quarter, private business capex advanced by 0.4%, below market expectations (1.0%) but above our forecast for a decline of 0.8%.”

“Implications for Q1 GDP growth forecast: our forecast for Q1 GDP has been rounded up to 0.9%qtr, 2.8%yr, upgraded from 0.8% on the back of upside for equipment spending.  
2017/18 capex plans: Est 6 is $117.5bn, some 3.8% above Est 6 a year ago. This represents a slight upgrade on 3 months ago, when Est 5 was +2.5%, driven by more resilience in mining. By industry: mining -2% (vs -8% 3 months ago); services +7% (from +9%); and manufacturing +4% (from +8.5%).”

“2018/19 capex plans: Est 2 is $87.7bn, which is 1.4% above Est 2 a year ago. This is a slight downgrade from +3.5% for Est 1, centred on a less robust read for services. By industry: mining is -6% (vs -5% 3 months ago); services is +5% (from +8%) and manufacturing +6% (from +7%).”