Australia’s private capital expenditure declines in Q3, points toward soft Q3 GDP data

Australia’s investment plans continue to point at just modest growth in non-mining investment and sharply lower mining investment in 2016-2017. The real total capital expenditure fell 4 percent in the third quarter, as compared to a decline of 5.2 percent in the prior quarter. Market projection was for a decline of 3 percent.

Companies have marginally revised up their total expected nominal business investment in 2016-2017 from AUD 105.6 billion to AUD 106.9 billion. Market expectations were for AUD 110 billion. Non-mining capital expenditure was revised to AUD 67 billion from AUD 64.4 billion.

“There’s no unique way of adjusting for the bias in firms’ forecasts, but our calculations suggest the numbers imply growth in total non-mining capex in 2016-17 of 4 percent (previous survey: +6 percent) and mining capex of -34 percent”, said ANZ in a research report.

Meanwhile, private investment continued to decline at faster pace in the September quarter. Non-residential construction dropped 6 percent, in line with the decline in non-residential construction in last week’s construction work done release. Equipment investment, which is the only series that directly feeds into GDP, dropped 1.9 percent and is likely to negatively contribute 0.1 percentage point from the third quarter GDP, stated ANZ.

“The weakness in Q3 equipment investment is disappointing, coming after a string of weak partial data, suggesting that Q3 GDP next week will be quite soft”, added ANZ.

Following three consecutive quarterly rises, non-mining investment fell 2.3 percent in the third quarter. Even if today’s result in disappointing, the broad up-trend in non-mining capital expenditure continues to be in place, especially given the strengthening in the broader GDP measure of non-mining business investment that includes important industries such as health and education.

Mining investment continued to decline sharply in the third quarter. Real mining investment declined 7 percent in the September quarter and is over 60 percent below the peak seen in 2012. On a GDP-consistent basis, it is estimated to have declined from a record peak of 9 percent of GDP to around 3.5 percent in the third quarter, according to ANZ.