Capex cliff arrives in all of its hideous glory

imgres

The ABS has released December quarter Expected Private Capex and the news is poor with the mining cliff now officially in sight, manufacturing cataclysmic  and only a muted response elsewhere. The fifth estimate for 2013/14 came in OK at $167 billion. But the 2014/15 estimate is 10% below most folks expectations

Brace, here we go:

Estimate 5 for total capital expenditure for 2013-14 is $167,066 million. This is 0.5% higher than Estimate 5 for 2012-13. The main contributor to this increase was Other Selected Industries (4.2%). Estimate 5 is 0.8% higher than Estimate 4 for 2013-14. The main contributor to this increase was Other Selected Industries (5.8%).

Estimate 1 for total capital expenditure for 2014-15 is $124,880 million. This 17.4% lower than Estimate 1 for 2013-14. The main contributor to the decrease was Mining (-25.2%).

0

MINING

Estimate 5 for Mining for 2013-14 is $102,422 million. This is 1.2% lower than Estimate 5 for 2012-13. Estimate 5 is 1.1% lower than Estimate 4 for 2013-14. Buildings and structures is 1.2% lower and equipment, plant and machinery is 1.1% lower than the corresponding fourth estimates for 2013-14.

Estimate 1 for Mining for 2014-15 is $74,201 million. This is 25.2% lower than Estimate 1 for 2013-14. Buildings and structures is 24.8% lower and equipment, plant and machinery is 28.4% lower than the corresponding first estimates for 2013-14.

1

MANUFACTURING

Estimate 5 for Manufacturing for 2013-14 is $8,905 million. This is 3.2% lower than Estimate 5 for 2012-13. Estimate 5 is 5.5% lower than Estimate 4 for 2013-14. Equipment, plant and machinery is 5.2% lower and buildings and structures is 6.0% lower than the corresponding fourth estimates for 2013-14.

Estimate 1 for Manufacturing for 2014-15 is $6,303 million. This is 19.6% lower than Estimate 1 for 2013-14. Buildings and structures is 35.2% lower and equipment, plant and machinery is 11.3% lower than the corresponding first estimates for 2013-14.

2

OTHER SELECTED INDUSTRIES

Estimate 5 for Other Selected Industries for 2013-14 is $55,739 million. This is 4.2% higher than Estimate 5 for 2012-13. Estimate 5 is 5.8% higher than Estimate 4 for 2013-14. Equipment, plant and machinery is 9.0% higher and buildings and structures is 1.8% higher than the corresponding fourth estimates for 2013-14.

Estimate 1 for Other Selected Industries for 2014-15 is $44,376 million. This is 0.4% higher than Estimate 1 for 2013-14. Buildings and structures is 2.6% higher and equipment, plant and machinery is 1.6% lower than the corresponding first estimates for 2013-14

3

Roughly speaking, applying the realisation ratio that averages the last three years we get a fall in business investment to around $140 billion in 2014/15 or minus almost 2% of GDP. That will not be fun.

Dollar dumped over a half cent.

45 Responses to “ “Capex cliff arrives in all of its hideous glory”

  1. 3d1k says:

    Sad but inevitable although mining still the major contributor by significant amount. Soon to be replaced by defence ;)

    • 3d1k says:

      Oh, and go Gina!

    • Pfh007 says:

      Speaking of defending our mining assets does anyone know whether we ended up with 100 Abraham tanks?

      I recall Howard announcing that he had agreed with Dubya to buy about 100 but I haven’t seen any doing border patrol round Sydney recently.

      Did we ever take delivery?

      • 3d1k says:

        Probably still working the way through myriad regulatory and compliance requirements…

      • Jason says:

        We definitely have received them, but you won’t see them patrolling around Sydney. They’re based along our northern borders.

    • The Lorax says:

      Such a relief to finally see the back of the boom. Lets hope we see the dollar below 80c by mid-year.

      Any word on this from The Kouk, Bloxo and The Pascometer?

      • Coming says:

        why would we be pleased to see a low dollar?

        Worse living standards for everyone.

        Export industry can be made competitive by other means than currency depreciation

      • The Lorax says:

        Which means would that be?

      • Coming says:

        Lower house prices and use that to leverage reduction of wages?

        The Germans manage to be an export powerhouse without relying on a weak currency

      • The Lorax says:

        Worse living standards by wage reductions and loss of wealth? I didn’t realise there was such a painless alternative!

        The cost of land has some impact on our export competitiveness, but its piddling compared to the 120% increase in the exchange rate between 2002 and 2011. To suggest otherwise is ludicrous.

        BTW, where do you think the Deutsch Mark would be today if Germany wasn’t saddled with most of Europe in deep recession?

      • b_b says:

        @ coming

        Yes – let’s lower wages to be competitive. Let’s force our workers into slavery to service the rest of the world…. Because a trade surplus is great. After all it has the word “surplus” in it, so it must be good.

        What a wonderful policy response.

      • Dave_Comments says:

        Germans don’t have to pay for one of the biggest property bubbles in the world. Frees them up to do lots of things.

      • The Lorax says:

        Dave_Comments: Our property bubble has some impact on our competitiveness, but it is insignificant compared to the 120% increase in our exchange rate between 2002 and 2011.

        Go ask an exporter what hurts more, high house prices or the dollar above parity.

      • Coming says:

        @b_b and @the lorax

        Explain to me how currency devaluation is any different than lowering wages anyway?

        Even domestic products like food and LNG are traded on a world market. Sure workers may have the same number of Australian dollars, but each is worth less.

        Im not an economist, but it seems like you feel that weakening your currency gives something for nothing. Surely there is a trade off which counters out any advantage (to the worker, at least, if not the owner of the capital/debt)

      • 3d1k says:

        Dave – Germany has also kept a lid on costs, particularly wages; manufactures high end componentry much of which is essential in the extended manufacture chain and is ideologically predisposed to a manufacturing mindset – this begins in the education system and progresses therefrom.

        I do not discount the pressure from a strong currency but suggest that even developed nations having weak currencies and the US itself have not entirely escaped competitive challenges in manufacturing wrought by globalisation.

        We are in a new and somewhat experimental era: globalisation brings enormous benefits and very real difficulties to domestic economies. This just becoming apparent.

        Welcome to the real world Australia. What are we going to do about it?

      • Dave_Comments says:

        @ Lorax
        No argument here.

        @ 3d1k
        How can we keep a lid on wages when the cost of living, especially housing, is this high?
        Uncompetitively high wages and most people still struggle – whats that tell you?
        “What are we going to do about it?” Me myself, I just left.

      • Bubbley says:

        @ Lorax – as one of Australia’s remaining small manufactures I’m filthy about it because the cost of my raw materials has gone up by 18%.

        Does that make me happy or make me want to do the cha cha? Hell no!

        So for every one that gets excited, there are many of us that are seriously hurt by a lower dollar.

        Not every one is revelling in it.

      • China-Bob says:

        Well said 3d1k, well said!

      • 3d1k says:

        Bubbly as you probably know I’ve always said it is Swings and Roundabouts when it comes to the AUD.

        There are winners and losers whether it is strong or weak – this is generally overlooked. I do not think a low currency is the one stop panacea to our ills.

      • The Lorax says:

        Bubbley, if you were exporting you wouldn’t care. If your raw materials are going up by 18% (some fraction of your total cost) but your end sale price is also going up by 18% you would be smiling.

      • Dave_Comments says:

        “I do not think a low currency is the one stop panacea to our ills.”
        =
        “Don’t lower it. I may be one of the ‘losers’ in that deal”

        No one is arguing that it is a cure all, but it’s an important first step.

      • b_b says:

        @ coming,

        I do not believe in currency devaluation either. It is the same thing. A race to the bottom.

        There is heaps of work available in Australia. Just not enough paid work.

        Why we feel compelled to work for a bunch of foreigners (exports) is beyond me.

      • Germans do have a weak currency. It;s called the euro. Were they still attached to the mark it’d be worth double.

      • 3d1k says:

        HnH I wasn’t claiming Germany did not benefit from having a weak currency, I was emphasising Germany’s embracing of manufacturing across all levels. The success of Mittelstand is well documented; deliberate education policy promotes both a technically skilled and academically able population – the trades highly valued, sciences and engineering too. A recognition of the need for both. A business/workforce alliance that promotes excellence, quality and longevity of production over short term rewards.

        Many countries have a weak currency. Few are the manufacturing success that is Germany.

      • spleenblatt says:

        3d, best not go too far down the “why aren’t we more like Germans” game. Some of the objectives/policies stemming from their other peculiar national attributes/heritage would likely not please you. How should we respond ? I suspect your particular vested interests wouldn’t like that one little bit. How will we actually respond to the current phase of globalisation ? The same as we have in all others – tap our feet to whoever’s paying the piper. So, sing along everybody (to the tune of 義勇軍進行曲): crunch the unions, crunch regulations, crunch wages, crunch publicly funded services, …

      • 3d1k says:

        Spleen, more or less. We are in the throes of global change predicated on Chicago School economics and the transformative power of international capital chasing legislative capture and global reward.

        The coming collision with socialist principles will test many a developed economy.

        Change is a given
        http://www.macrobusiness.com.au/2014/02/capex-cliff-arrives-in-all-of-its-hideous-glory/#comment-329855

      • Dave_Comments says:

        Clearly, arguments can be made for any plan.
        Lower currency, macroprudential regulation, peg, pro-bubble, anti-bubble, a service-based economy, focus on education and higher end manufacturing, NBB redemption… well, just about anything.
        The disturbing thing is we’re doing nothing at all except watch the current predicament burn us all slowly.
        Is this what it means to be Australian?
        All the answers are back in time so we’re stuffed and we’re gonna stay stuffed?
        We’ve got alot going for us… this could be the perfect time to show that Australia really can be different.

        Good Lord, this blue girl beer sure does ramp up my cognitive dissonance.

  2. boomengineering says:

    What chance has manufacturing got with all the macro economics against it and internally cancerous from within. I was talking to a advertising cameraman in the surf and he said he his personality had to more amiable
    to to the models according to HR rather than being a good cameraman. Same with a client who is an airline pilot trying to progress, his personality got in the way.

  3. bennoz says:

    wow – i knew mining would be bad (thx to MB) but manufacturing is almost as bad, and im really shocked. E1 2014-15 down almost 20%

    wow

  4. Jake Gittes says:

    Even Kouk is subdued.

    Capex data just knee capped Q4 GDP due next week.

    https://twitter.com/TheKouk

  5. Wing Nut says:

    Meh, housing construction will fill the gap, all $140 billion if it.

    • steve99 says:

      You mean ‘House price rises’ which is what the government, the rba, the press and the rest of the spruiker media call a ‘housing boom’. Building stock flies against that unless it is more city flats for the Chinese money flight.

  6. geoffw says:

    “Dollar dumped half a cent”?!

    When will markets realise it should be below 80 and act accordingly? Thoughts?

    • Dave_Comments says:

      We’re not seeing AUD strength, we’re seeing USD weakness and some optimistic speculation on China.
      When the eastern seaboard thaws out and China is forced to flip over their cards, it’ll fall.
      Positive carry only goes so far.

      • Bubbley says:

        Very true Dave.

      • geoffw says:

        Yep, that makes sense.

      • China-Bob says:

        @Dave
        IMHO All the words in the world cant change the basic fact that we are witnessing a Changing of the Guard, Fortunately its an event that only happens about once per century so we dont really need accurate economic model for it, because it is the exception state.

        Before the change is completed the US needs to halve their average standard of living and China needs to double their standard of living ALL other economic activity in the world needs to adjust to this new reality.

      • Dave_Comments says:

        @China bob

        Changing of the guard?
        I like chinese people and live amongst them. If that were true, I think it would be a positive thing for the world.
        Sadly, its not.
        The guy with the biggest gun will continue to rule the world.
        The posturing of the PROC is tolerated only as long as they continue to do the dirty work, pump out Iphones and buy US T-bills.
        They get any ideas about doing anything different and they’ll quickly be smacked down.

  7. bennoz says:

    so what are these numbers going to do for interest rates?

    RBA to lower sooner than expected?