Inside Australia’s capex smash

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From Morgan Stanley:

WQ

Capex data for 1Q16 came in largely in line with our estimate of a substantial decline, which looks set to continueata-20%+ rate through FY17. Weremain concerned abouta”double-unwind” of capex and housing over 2016, and highlight our recent shift to a 1% trough for the RBA cash rate.

Second take on FY17 still bleak: Today’s 1Q16 capex data included the second ABS survey of private sector capex for 2016-17, which came in at A$89bn and now flags a 25% decline over the year (versus -23% for E1). The capex cliff in resources capex well understood, and E2 was largely unchanged at -38% yoy to ~A$33bn (5-year realisation). But crucially, we still have not seen any improvement in the investment plans of the non-mining sectors included within the survey’s coverage, with E2 pointing to a slightly worse 6% decline to A$60bn in FY17 (vs -5% in E1). Meanwhile, manufacturing capex is expected to fall another 7% next year, marking the fifth straight year of decline.

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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.