ASX300 signals the capex cliff

WilsonHTM’s Damien Klassen continues to produce market leading insights with a little post earnings season note that says it all about the challenge ahead for the Australian economy:

Consensus 3 month revisions to capex forecasts for ASX 300 Industrials*

Consensus 3 month revisions to EPS forecasts for ASX 300 Industrials* Source: Wilson HTM, Thomson Reuters  * Note my definition of industrials doesn’t include banks, REITs, utilities or infrastructure Additional Thoughts:

• We have seen pretty weak capex expectation surveys from various sources (ABS, NAB, Dunn&Bradstreet) for some time – however that hasn’t really flowed through to analyst forecasts for listed companies until now.
• Partly this is probably a reflection of a higher dividend payout needing to be funded, but many comments at reporting season showed a renewed focus on costs
• The RBA expects capex in the non-resource side of the economy to pick up and “take over” from falling capex in the resources sector. While there have been some mild encouraging signs from residential construction, the business side does not look like its turning up
• Will a new government be enough to change the minds of business leaders? In my view any business confidence bounce tends to be temporary.
• My view is that a broad uplift in industrial capex is going to need a lower Australian dollar – companies that are uncompetitive at an Australian dollar of 90-95 cents are not going to spend more on capex if you lower their cost of borrowing, they need a lower Australian dollar to restore competitiveness before they will spend more on capex.

Precisely.