Expected capex shows rebalancing

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The ABS has released the March quarter expected private capex report and the word of the day will be “rebalancing”.

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Estimate 6 for total capital expenditure for 2013-14 is $162,849 million. This is unchanged (+$60m) from Estimate 6 for 2012-13. Estimate 6 for buildings and structures increased by 3.4% (+$3,644m) while Estimate 6 for equipment, plant and machinery decreased by 6.5% (-$3,582m). Estimate 6 is 2.5% lower (-$4,136m) than Estimate 5 for 2013-14. The main contributor to this decrease was Mining (-$7,154m).

Estimate 2 for total capital expenditure for 2014-15 is $137,063 million. This is 12.0% lower than Estimate 2 for 2013-14. The main contributor to this decrease was Mining (-$21,526m). Estimate 2 is 9.3% higher (+$11,685m) than Estimate 1 for 2013-14. The main contributors to this increase were Other Selected Industries (+$5,914m) and Mining (+$5,757m).

It’s the 2014/15 estimate that will surprise the market. It’s materially better than feared at $137 billion versus $127 billion consensus. That’s borderline tearaway.

The mining capex cliff looks big:

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Estimate 2 for Mining capital expenditure for 2014-15 is $79,956 million. This is 21.2% lower (-$21,526m) than Estimate 2 for 2013-14. Estimate 2 is 7.8% higher (+$5,757m) than Estimate 1 for 2014-15. Buildings and structures is 7.1% higher (+$4,661m) and equipment, plant and machinery is 13.1% higher (+$1,096m) than Estimate 1 for 2014-15.

Manufacturing is a disaster:

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Estimate 2 for Manufacturing capital expenditure for 2014-15 is $6,829 million. This is 17.8% lower (-$1,475m) than Estimate 2 for 2013-14. Estimate 2 is unchanged (+0.2%, +$15m) from Estimate 1 for 2014-15. Buildings and structures is unchanged (-$1.5%, -$32m) and equipment, plant and machinery is unchanged (+1.0%, +$46m) from Estimate 1 for 2014-15.

But services is much better:

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Estimate 2 for Other Selected Industries for 2014-15 is $50,278 million. This is 9.5% higher (+$4,373m) than Estimate 2 for 2013-14. Estimate 2 is 13.3% higher (+$5,914m) than Estimate 1 for 2014-15. Buildings and structures is 15.5% higher (+$3,278m) and equipment, plant and machinery is 11.3% higher (+$2,636m) than Estimate 1 for 2014-15.

The end result is positive and implies a final outcome of roughly $150bn, or minus 5-6% on 2013/14 using a recent average realisation ratio, which will be manageable if achieved and a marked improvement on the previous quarter’s implied double digit falls.

The housing and consumption boomlet of the first quarter has done its job in lifting investment intentions. The survey will have been conducted over April and May so it probably hasn’t fully captured the nation’s more recent dour mood and I expect we’ll see the improved outlook ratcheted back some next quarter.

It’s good news nonetheless. The dollar popped 30-40 pips.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.