For any economist that is burdened with a brain and unencumbered by an interest, there is really only one question that matters for Australia this year and it is this: when will mining investment peak and what will replace it?
An important part of answering this question will arrive next Thursday in the form of the ABS private capex survey, which includes estimates of capex spending intentions.
Westpac has released a useful note providing a range of scenarios for the capex release (which is quite difficult to read for the lay person) which helps with context. The note itself is quite complex sadly but it’s a nonetheless useful if you have the time.
The ABS estimates run two quarters in advance so this will be the first time we will get an idea of investment intentions for Q1 2013/14. Westpac offers four scenarios for that estimate:
Scenario 1, 2013/14: – a smooth rebalancing of growth
Est 1 of $150bn.
Implies an outcome of $170bn, growth of +2.5%
Manufacturing & services: growth of 6%
Scenario 2, 2013/14: – a resilient result
Est 1 of $147bn.
Implies an outcome of $166bn, and a flat outcome
Mining: a decline of 2%
Manufacturing & services: growth of 3%
The RBA would arguably be encouraged by such a reading. This could be interpreted as a modest pace of decline in mining investment and tentative evidence of a pending modest improvement in investment across the broader economy.
Scenario 3, 2013/14: – no rebalancing of growth
Est 1 of $143bn.
Implies an outcome of $162bn, and a decline of 2%
Mining: a decline of 4%
Manufacturing & services: flat
Such an outcome and such a mix would add to concerns of a potential growth gap. This would confirm that mining investment is no longer adding to growth but was instead subtracting. Additionally, there would be no evidence that the non mining sectors are about to fill the gap.
Scenario 4, 2013/14: – a particularly weak result
Est 1 of $140bn.
Implies an outcome of $158bn, and a decline of 5%
Mining: a decline of 6%
Manufacturing & services: falls of 3%
Investment declining on a broad based front would be cause for concern. With fiscal policy contracting and the currency stubbornly high, monetary policy would have more work to do.
I personally think we’ll come out between Scenarios 2 and 3. But I also expect the survey to weaken all year.