Australia Q4 capex data due today (a market focus) — preview

Private Capital
Expenditure survey from the Australian Bureau of Statistics
for the
October — December quarter.Of interest in the data is both

  • the backward looking data (this is the ‘headline’ business capex for the quarter just passed, the Bloomberg survey has median expectations at +1.0% while Q3 was also +1.0%) which feeds into GDP data (due for Q4 next week from Australia) 
  • AND the forward foreword looking ‘estimates’  — today the focus is on ‘estimate 5’ for the year (2018/18) and also on ‘estimate 1’ for 2018/19 capex.

I posted a preview
of this yesterday, here: 

  • Thursday — Q4 capex preview

A couple more previews now, any bolding is mine (headline, estimate 5 and estimate 1 all bolded).
Via …

  • Business capex spending turned the corner in 2017 with the mining investment wind-down largely complete and with the emergence of an upswing in investment by the non-mining economy.
  • Equipment spending appears to have emerged from the soft spot during the second half of 2016, which was associated with uncertainty around the July Federal election. We anticipate a further 1% increase in the December quarter, lifting annual growth to 4%.
  • Building & structures capex spending while still at a relatively low level has also moved higher in 2017. There has been some resilience in mining (as the remaining gas projects under construction are completed) and as commercial building activity advances.
  • For Q4 we anticipate an outcome of around +0.6%qtr, 4.4%yr (factoring in a 3.4%qtr rise in non-residential building and a 1% decline in engineering).

  • Estimate 4 of capex plans for 2017/18 is $108.9bn, 1.6% above Est 4 a year ago, an improvement on -2.4% for Est 3. Based on average realisation calculations, we estimate that Est 4 implies capex spend in 2017/18 will be broadly unchanged from 2016/17. Mining capex spend will be down on the year prior offset by an increase in the service sectors, centred on a rise in building activity.
  • Est 5 (with a potential upgrade to around $112bn) will likely confirm this consolidation in 2017/18 at a time of improving conditions globally but an uneven expansion domestically, with consumer spending the source of weakness.
  • This survey update, conducted in January and February, will include the initial estimate (which is often unreliable) of capex spending for 2018/19. Potentially, Est 1 could be in the order of $82bn, 1% above Est 1 a year ago, as mining capex forms a base. Service sector intentions will be of particular focus — a lack of a clear signal at this early stage would not surprise (capex plans tend to firm up later in the piece).


There are three key figures in … capex survey

  • (i) Q4 2017 actual spending;
  • (ii) 2017/18 expectations (5th estimate);
  • and (iii) 2018/19 expectations (1st estimate).

will focus on the forward looking expenditure plan
s, particularly the
first cut of 2018/19 spending intentions.

  • First estimates for
    spending plans can vary significantly from actual spending. A
    comparison of previous first estimates with actuals shows that
    non-mining firms will almost always underestimate their capex plans
    at first stab. But the magnitude of the miss can vary greatly in any
    given year. As the economic landscape changes, capex spending plans
    evolve accordingly. The first estimate is often revised up sharply if
    demand lifts. Mining firms, on the other hand, have tended to more
    accurately estimate their capex plans over the past few years —
    basically since the peak in the investment boom.
  • Our forecast is for
    nominal capex, as measured by the survey, to lift by 4% in 2018/19
    (comprised of a 7% increase in non-mining investment and a 2% fall in
    mining capex). For that to materialise, we are looking for the first
    estimate of 2018/19 capex spending plans to come in around $84bn

would interpret a figure above $57bn for non-mining spending plans as
a good outcome as it would imply a respectable pickup in capex
outside of the resources sector (note that our pick of $58bn would be
a strong outcome). Mining continues to fall as a share of total capex
and the drag on growth from falling resources investment is largely

The last reading from three months ago implied a small of
around 1% in nominal capex this financial year. The detail suggests a
fall in mining capex of 22% and a healthy 10% increase in non-mining
investment. Here we note that the capex survey only captures around
60% of business investment as per the national accounts. The survey
excludes a number of large and important industries which include
agriculture, health and education

We expect the actual volume of Q4
capex to rise 1.7% after a 1.0% increase in Q3.

  • Such an outcome would leave annual growth 5.2% higher.
  • The actual spending data will help firm up our estimates of Q4 GDP growth (due 7 March). Global growth has picked up and local employment growth has been strong. On balance, these factors point to upside risk on our 2017/18 capex expectations. The risk to our 2018/19 forecast, however, is to the downside given there are a few LNG projects set for completion in 2018/19.

—Also, check out BI’s preview here

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