Australia’s total capital expenditure likely to have dropped in Q2

The capital expenditure survey to be taken on Thursday, would give an estimate of Australia’s actual investment in the second quarter and an update on companies’ plans of investment for 2016-2017. The focus would be on the prospect of non-mining business investment, where a small improvement is expected, said ANZ in a research report. An upgrade is likely for companies’ expected investment in 2016-2017 that might continue to suggest a huge decline in spending.

“Revising our initial forecast of AUD96bn, we forecast that businesses will upgrade their plans for nominal investment in 2016-17 from AUD89bn to AUD98bn (market: AUD97bn)”, added ANZ.

When this is adjusted for the typical bias in companies’ plans at this early stage of the panning cycle, it suggests a decline of 18 percent in spending, as compared with the decline of 16 percent indicated by the previous quarter’s survey.

The non-mining outlook is expected to indicate towards a lesser fall in investment. The initial two estimated of non-mining spending plans for 2016-2017 were dull; however, certain rebound is likely in this survey given upbeat surveyed business confidence and conditions. Expected spending for 2016-2017 is anticipated to be revised to AUD 60 billion from AUD 53.2 billion, according to ANZ.

After adjusting for bias, this might be in line with investment declining 4 percent, as compared with the 6 percent fall anticipated in the previous quarter.

“In terms of the sensitivity around the non-mining estimate, we would view a revision to more than AUD62.5bn as a positive result because it would point to investment being flat-to-higher in 2016-17”, noted ANZ.

Mining investment is likely to keep falling as the record boom in spending reverses. Mining investment is anticipated to be revised to AUD 38 billion from AUD 36 billion. This is likely to indicate towards an approximate 30 percent decline in nominal investment, in line with the suggested estimate from previous quarter’s survey.

“We believe that we are currently experiencing the sharpest drag on GDP from the unwinding of the boom in mining capex, where this subtraction should ease over 2017”, stated ANZ.

Total capital expenditure is expected to decline sharply in the second quarter. Actual capex is anticipated to have dropped 6.4 percent sequentially in the second quarter following a 5.2 percent drop in the first quarter. Non-residential construction is likely to drive this decline, consistent with the sharp fall in mining-related activity witnessed in last week’s construction work done report.

“We expect a small 1 percent increase in equipment spending, which is the only part of this survey that feeds directly into Q2 GDP”, added ANZ.