Australia: CAPEX outlook increasingly positive – ANZ

It was an overall a positive CAPEX report of Australian economy for Q3 as investment increased for the third quarter in a row, and plant and equipment spending will support Q3 GDP, according to Daniel Gradwell, Senior Economist at ANZ.

Key Quotes

“The outlook for investment is increasingly good, led by the non-mining industries, and even the drag from the mining sector continues to lessen. The way that strength in surveyed business conditions is converting into actual investment is encouraging.”

“CAPEX recorded a mild 1% rise in Q3. Although only a small rise, it reflects the third consecutive quarter of growth – the longest run since the mining boom was in full swing in 2011-12. This provides further evidence that the transition away from the mining sector and towards other industries is picking up pace.”

“Looking at the details, spending on plant and equipment rose (+0.7% q/q), although not as strongly as the previous quarter (+2.1% q/q). While this result is slightly softer than we anticipated given a sharp rise in capital goods imports in the quarter, it will still be a positive contributor to next week’s Q3 GDP data. Non-residential construction CAPEX rose 1.2%, which was stronger than we had expected based on last week’s construction work done data.”

“In particularly good news, firms’ estimates for CAPEX in 2017-18 were revised significantly higher. This was led by the non-mining industries, which are now reporting an expectation of 13% y/y growth, up from 8.5% last quarter. This result is certainly encouraging after several years of next to no growth in investment. The strength in reported business conditions and profitability, and improvements in capacity utilisation, are now driving the need for investment.”

“On the other hand, the forecast decline in mining investment is lessening. Firms now report mining investment will fall by 17% y/y in 2017-18, down from a 22% decline forecast six months ago.  Coupled with the fact that mining investment was flat in Q3 – the first quarter in four years where it hasn’t fallen – it does not appear to be long until the fall in mining is behind us.”