The Reserve Bank of Australia (RBA) has released its September Bulletin, a compendium of research papers and articles on various topics. Alongside an interesting paper on supply side issues with Australian property, there’s an equally interesting paper on capex forecasting that’s drawing some interest – here’s the abstract:
Business investment is a key driver of economic growth and is currently around record highs in Australia as a share of GDP. In compiling forecasts for business investment, the Reserve Bank uses a variety of different indicators, including information from liaison as well as survey measures of firms’ investment intentions. The most comprehensive survey is the Australian Bureau of Statistics’ (ABS) quarterly survey of Private New Capital Expenditure and Expected Expenditure (Capex survey).
While firms’ expectations of capital expenditure from the Capex survey are a useful guide for forecasting business investment, the relatively large forecast errors suggest that the Capex expectations data should be used in conjunction with other sources of information.
It appears that capex forecasts are as overly bullish as earnings forecasts for listed companies as we have seen with the “Futureboom! that’s not a boom, but is a boom” dynamic since BHP nixed several capex programs recently.
Here’s the full paper (in PDF):