From Westpac come a preview to tomorrow’s capex release:
The ABS survey of private business investment plans, the CAPEX survey, will provide some further guidance to growth prospects. The September quarter edition will be released on November 27, with responses received over October and November. This update will include the fourth estimate of plans for 2014/15.
The 3rd estimate for 2014/15 pointed to a decline in business capex, with a sharp downturn in mining only partially offset by a lift in service sector investment. These broad themes are likely to be restated. What policy makers will be looking for is some greater clarity around the likely magnitudes of these divergent trends.
The RBA does take note of the capex survey, but is mindful of its shortcomings, stating that: “the expectations component of the ABS capital expenditure survey … tends to be a relatively imprecise guide to firms’ realised spending”.
Recent developments in the Australian economy have been mixed.
Of note, non-residential building approvals have weakened in recent months, reversing earlier strength. That poses a downside risk to investment plans by the service sectors for 2014/15.
A recap of the June capex survey 2013/14: outcome
Total capex moderated from $160.5bn in 2012/13 to $157.9bn in 2013/14, a decline of 1.7%. By industry, mining fell by 4.6% and manufacturing declined by 2.8%, partially offset by a 3.5% increase in service sector capex spending.In real terms, capex declined by 3.5% in 2013/14, with equipment down 11.4% and building & structures up 0.9%. 2014/15: Estimate 3
Est 3 of capex plans for 2014/15 is $145bn. That is 10% lower than Est 3 for 2013/14. By industry, Est 3 vs Est 3 a year ago are: mining, –21% (unchanged from 3 months earlier); manufacturing, –6.5% (upgraded from –18%) and services, +12% (upgraded from 9.5%).
An alternative approach is to use average realisation ratios (RRs).
On this basis, we calculate that Est 3 implies capex in 2014/15 will be 8% below that in 2013/14 (a figure not greatly different from the –10% for Est 3 on Est 3). By industry, average RR’s suggest: mining, –21%; manufacturing, –13%; and services, +13%.
Interpreting Est 3: implications for business investment
What to make of the capex survey, what does it imply for overall business investment? Firstly, we would note that the capex survey provides only partial coverage of business investment and hence has its limitations. In Q2, capex was $38bn, while business investment in the national accounts was $64bn.We calculate that Est 3 implies a decline in business investment in 2014/15 of 3% in nominal terms and potentially a 5% drop in real terms (based on applying industry weights from the national accounts). That is only marginally weaker than our forecast for business investment to decline by 3% in real terms in 2014/15.
Scenarios for the September capex survey
2014/15: Estimate 4
Here we set our three scenarios for Est 4 of 2014/15 capex.
The approach is based on applying average RR’s.
Recall that the outcome for 2013/14 was $157.9bn, and that Est 3 was $145bn, implying an outcome of $146bn, –8%.Scenario 1, 2014/15: – a restatement of Est 3 (implied –8%)
Est 4 of $150bn.
Implies a final outcome of $146bn, –8% on 2013/14
Mining, –21%; manufacturing, –13%; services, +13%Scenario 2, 2014/15: – a softer result
Est 4 of $143bn.
Implies a final outcome of $139bn, –12% on 2013/14
Mining, –25%; manufacturing, –17%; services, +9%Scenario 3, 2014/15: – a more positive result
Est 4 of $156bn.
Implies a final outcome of $152bn, –4% on 2013/14
Mining, –17%; manufacturing, –9%; services, +17%
