Australian Capex: Poor headlines, decent underbelly - TDS

Australia’s December quarter real private capital expenditure (capex) eased by -0.2%/qtr (mkt +1%/qtr), although the component that feeds into GDP—plant & equipment investment—rose by +2.2%/qtr and manufacturing was +2.6%/qtr, while mining were -4.7%/qtr, notes Annette Beacher, Chief Asia-Pacific Macro Strategist at TDS.

Key Quotes

“The planned (raw) spend for 2017-18 was upgraded from $A109b to $A116b. After adjustment, mining is expected to shrink by -22%, manufacturing upgraded to +6%, while services remained upbeat at +9% (albeit downgraded from +12%). The first estimate for 2018-19 is a rough guess only (the first estimate for 2017-18 was negative across the board). Applying the 5yr ave. realisation ratio to the raw $A84b spend, the adjusted spend is $A108b, with services accounting for 70%.”

“Ahead of Dec qtr inventories, net exports and public spending reports next week, our GDP tracking is +0.5%/qtr, lowering annual GDP growth to 2.5%/yr. However, this is consistent with the RBA’s February projection of 2½%/yr for end-2017.”