By Gareth Aird, senior economist at the CBA:
- We expect the fifth estimate of 2016/17 spending plans to come in near $107bn.
- Our forecast is for the actual volume of QIV capex to rise by 2% which would leave annual growth 12% lower.
- We receive a first estimate of 2017/18 spending plans.
There are three key figures in next week’s capex survey (i) QIV 2016 actual spending; (ii) 2016/17 expectations (5th estimate); and (iii) 2017/18 expectations (1st estimate). Markets will focus on the forward looking expenditure plans, particularly the first cut of 2017/18 spending intentions.
2017/18 expectations (1st estimate) – see table 1.
First estimates for spending plans can vary significantly from actual spending. A comparison of previous first estimates with actuals shows that non-mining firms will almost always underestimate their capex plans at first stab. But the magnitude of the miss can vary greatly in any given year. As the economic landscape changes, capex spending plans evolve accordingly. The first estimate is often revised up sharply if demand lifts. Mining firms, on the other hand, have tended to more accurately estimate their capex plans over the past few years – basically since the peak in the investment boom.
Our forecast is for nominal capex, as measured by the survey, to fall by 2% in 2017/18 (comprised of a solid decline in mining investment of around 11% partially offset by a small lift in non-mining investment). For that to materialise, we are looking for the first estimate of 2017/18 capex spending plans to come in around $84bn. We would interpret a figure above $56bn for non-mining spending plans as a good outcome as it would imply a respectable pickup in capex outside of the resources sector. Mining continues to fall as a share of total capex and the drag on growth from falling resources investment is waning.
2016/17 expectations (5th estimate) – see table 2.