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Australian CAPEX Preview: Positive business mood – Westpac

Andrew Hanlan, Research Analyst at Westpac, points out that the March quarter update will be released on May 31, including the 6th estimate of capex plans for 2017/18 and the 2nd estimate of plans for 2018/19, as well as actual capex spending for Q1 2018.

Key Quotes

“The March quarter survey was conducted during April and May. Private business surveys report that business conditions are elevated, at a time of supportive world growth, and business confidence is a little above average, mirroring the positive business mood globally.”

“Business investment has turned the corner, advancing in 2017, a turnaround from four years of decline. The drag from the mining investment wind-down is greatly diminished (but not quite complete) and an upswing in non-mining construction activity is underway, to meet the needs of a growing population.”

“However, a question mark remains around the strength of consumer spending. The household sector remains under pressure with persistent weak wages growth, high debt levels and now declining house prices. The absence of sustained strength in consumer spending is a headwind for business equipment spending.”


  • Currently, the tone of the capex survey is consistent with other indicators, namely: (1) that the mining investment wind-down is largely complete (with the remaining gas projects under construction to be completed over the coming year); and (2) that an upswing in non-mining investment is underway, centred on construction activity. The private business surveys, such as NAB and the AusChamber-Westpac survey, also point to a positive outlook for business investment.
  • The non-residential building approvals data confirms that more projects are receiving the go ahead, with strength across offices and across social building projects (which includes hotels, health and education, as well as entertainment). The upswing in building activity is evidence of the imperative to expand the capital stock to meet the needs of a growing population, particularly in the capital cities of Melbourne and Sydney.
  • The detail of the capex survey reveals that the positive service sector capex plans for 2018/19 are largely centred on building and structures, consistent with the strength in building approvals. Less clear is the outlook for equipment spending by the service sectors given the uncertainty around momentum in consumer spending.
  • We also note and caution that the capex survey provides only partial coverage of total business investment. It excludes key industries (health and education) and key assets (intellectual property products). Currently, given these differences, the capex survey will tend to understate the outlook for business investment.”


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