Australian private capital spending falls in Q2, outlook for 2018-2019 weak

The Australian CAPEX report came in soft in the second quarter, and the fall in plant and equipment spending might be a drag on the second quarter GDP data. The outlook for 2018-2019 is also slightly weaker than expected, noted ANZ in a research report.

Private capital spending dropped 2.5 percent in the June quarter, the weakest quarterly result in almost three years. The details also came in weak, with plant and equipment spending falling 0.9 percent. Some of this softness was countered by upward revisions to the first quarter data but the overall result is still disappointing.

This weak result should possibly be considered in the context of the strength of the previous 12 months. Plant and equipment spending had risen more than 10 percent in the year to March, and even after the subdued second quarter result annual growth continues to be elevated.

Nevertheless, the outlook for companies’ spending in 2018-2019 was also slightly weak about the details. The headline figure for investment plans of AUD 102 billion was consistent with expectations, but the non-mining outlook suggested a slight downgrade from last quarter.

The outlook now implies that capex will rise just marginally around 0.4 percent year-on-year in 2018-2019, down from the 5 percent growth expected in the first quarter report, and the 8 percent expected in the fourth quarter, stated ANZ. While it is still early days for these forecasts, it is still a disappointing result that the outlook has weakened two quarters in a row.

Meanwhile, the decline in mining investment is edging closer to completion. Mining capital expenditure dropped 7 percent year-on-year in 2017-2018, which is a considerable improvement on the 15 percent to 30 percent falls of the previous three years.

Companies now report that spending in 2018-2019 will fall by about 4 percent, rather than the 9 percent fall first forecast six months ago.

“Further ahead, the recently announced LNG and iron ore projects in the Pilbara will provide some support to the mining outlook”, added ANZ.

At 10:00 GMT the FxWirePro's Hourly Strength Index of Australian Dollar was slightly bearish at -65.6153, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -63.7113. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex