I’ve opined continuously over Australia’s forthcoming capex cliff and the absurdity of various rallies in engineering services firms over the past year but I’m just not getting through, according to Morgan Stanley:
From 2001 to 2012 Australia experienced eleven consecutive years of growth in E&C activity with no less than nine of these years representing double digit YoY increases. The pending downward trajectory in E&C activity is clear as the value of work yet to be done (a proxy for the industry backlog) continues to decline from its March 2012 peak – figures to 3Q13 are now down A$24bn.
While it is perhaps tempting to look back at 2013 and the profit warnings that characterized it and think the worst is over, the macro trajectory for E&C capex clearly suggests otherwise, with little prospect of a new wave of public or private sector projects looking capable of stemming the decline:
Although investors remain bearish toward the industry if these macro headwinds play out, as we expect over the next three years, we believe investors may continue to be surprised to the downside.
No shit. Madness! MS is most bearish on LEI and MND but doesn’t like DOW, TSE or UGL either. WOR scrapes through a pass owing to international exposures.
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.
