Yesterday’s lousy capex outlook numbers from the ABS belie the business boom we are seeing unfold every month in the NAB business survey. This survey is a key forecasting tool for many economists but it has misfired now for the better part of a decade. The excellent Damien Boey at Credit Suisse has a much better idea today:
Capex recovery interrupted
We have just published an article explaining why we think that business capex will stagnate in 2018 (attached). We have constructed a leading indicator of business capex using a large information set. Fundamentally, we seek to capture internal cashflow, external financing conditions, demand, sentiment, and pre-announced spending plans. Our indicator points to peak growth now, and negligible growth through to the end of the year.
Essentially, capex is caught in the tension between two superimposed growth models. On the one hand, the “old” model, driven by consumers, housing and credit is not supportive of recovery. Indeed, rising funding costs and tightening credit availability are significant downside risks given that firms no longer have a positive “financing gap”, and therefore are more sensitive to market developments.
The full text of this article is available to MacroBusiness subscribers
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.
