Private Capital Expenditure data for Q2. I posted earlier: Australia - Capex data (for the April - June quarter) coming up today - 2 previews

Here are another 2 ...

Commonwealth Bank of Australia:

There are two key figures in the capex survey to be published on 31 August 2017:

  • (i) Q2 2017 actual spending;
  • and (ii) 2017/18 expectations (3rd estimate).

Markets will focus on the third cut of 2017/18 spending intentions.

The Q2 actual will finalise the 2016/17 capex outcome.

As usual, we note that the capex survey only captures around 60% of business investment as per the national accounts. The survey excludes a number of large and important industries which include agriculture, health and education.

We preview each of the two components below.

2017/18 expectations (3rd estimate)

  • The second estimate of 2017/18 capex plans three months ago came in at $85.4bn. The figuring implied a fall in mining capex of around 30% when compared with 2016/17 and no lift in non-mining capex.
  • Third estimates for spending plans can vary significantly from actual spending. A comparison of previous third estimates with actuals shows that the non-mining sector will always underestimate its capex plans in the early rounds when quizzed. However, the magnitude of the miss can vary greatly in any given year.
  • Mining firms, on the other hand, have tended to follow the capex boom and bust. In the early days of the resources boom, mining firms were generally upgrading capex plans over the survey period.
  • In recent years, however, as the mining boom has unwound, actual spending has come in below early estimates (i.e. firms have been downgrading spending plans over the survey period).
  • We consider a third estimate that comes in larger than $93bn as an upgrade on the second estimate. Less than $93bn would imply a downgrade
  • Policymakers will be looking, in particular, for a lift in non-mining spending intentions in 2017/18 (more than $64bn).
  • Business surveys points to a lift in nonmining capex, but so far it has failed to materialise.

Q2 2017 actual

  • We expect the actual volume of Q2 capex to decline by 2.0% (a 4.1% fall in building and structures partially offset by a 1.4% lift in plant and equipment). Such an outcome, revisions aside, would leave the annual change 5.2% lower.
  • The actual spending data will help us to firm our estimate of Q2 GDP growth (published on Wednesday 6 September). Our preliminary forecast is for GDP growth to print at 0.4% q/q and 1.5% y/y.

Risks

  • The continued strength of business surveys (e.g. CBA PMIs, NAB Business Survey) as well as a lift in global demand and some genuine improvement in the labour market suggests that the risk to our call on 2017/18 capex intentions is to the upside.

---

Note in their preview CBA have focused on two 'Key figures'.

Westpac follow a similar path:

Australia Q2 private capex

  • Last: 0.3%
  • WBC forecast: -0.8%
  • Mkt f/c: 0.2%
  • Range: -4% to +2.5%

Business spending on capex contracted in each of the past four years, including a -15% for 2016, led lower by mining.

  • The descent in capex spend is likely to resume in Q2 after a rare rise in Q1, up 0.3%. That said, the rate of decline is slowing as work on gas projects draws towards a close.
  • Total capex is forecast to fall by -0.8%qtr, -4.6%yr in Q2.
  • Building & structures is expected to fall by almost 2%, more than reversing a surprise 0.7% rise in Q1, to be 42% below the level of three years earlier.
  • Equipment spend is forecast to edge 0.6% higher, reversing small declines over the past half year. A modest lift in spending by the service sectors is expected to outweigh a further decline in mining

Australia 2017/18 capex plans, AUD bn

  • Last: 85.4

Capex spend will inevitably decline in 2017/18, building on falls in each of the four previous years.

  • Est 2 for 2017/18 is $85.4bn, 6.4% below Est 2 of a year ago. This is a decline of $5.9bn, due to a -$7.9bn for mining.
  • We anticipate an Est 3 of about $96bn, a 12% upgrade on Est 2. This is an above par upgrade, with the recent average at 8.4%. This reflects the backdrop of improved business conditions domestically and globally.
  • However, this is short of the 15.7% upgrade for Est 3 in 2016/17. That was the largest Est 3 upgrade since 2010/11 and occurred as the business mood turned around after the turmoil of early 2016 when iron ore was at only $40/t. • Importantly an Est 3 of $96bn is 9.4% below Est 3 a year ago. That is, on our numbers, the 'Est-on-Est' comparison deteriorates from -6.4% for Est 2 to -9.4% for Est 3, due to unfavourable base effects.