Australia: Uncertain investment outlook in capex - Westpac

Andrew Hanlan, analyst at Westpac, notes that Australia’s Q1 capex spending disappointed as it declined by 1.7%.

Key Quotes

“Falls were evident across assets: building & structures, -2.8% and equipment, -0.5%. By industry, falls were broadly based: mining, -1.3%; services, -1.2%; and manufacturing, -7.4%.”

‘Estimate 6 of capex plans for 2018/19 is $122bn, which is 3.8% above Est 6 a year ago. This is broadly consistent with Est 5 of 3 months earlier.”

“For the 2018/19 year, Est 6 implies capex spend will be 4% above that in 2017/18 ~ we calculate, based on average realisation ratios (RRs).”

“Turning to 2019/20, Estimate 2 of capex plans is $99bn, which is 12.8% above Est 2 a year ago.”

“We assess that the Est 2 on Est 2 figure of +12.8% is flattered by weak base effects. The Est 2 of a year ago was relatively weak compared with the likely outcome for the 2018/19 year.”

“For the 2019/20 year, Est 2 implies capex spend will be 1.3% above that in 2018/19 ~ we calculate, based on average realisation ratios (RRs). This figuring suggests that the near-term investment outlook is relatively subdued with a flat profile for the service sectors.”