Australia's Q4 CAPEX numbers worse than expectations, but outlook more positive

Australia's private capital expenditure fell a seasonally adjusted 2.1 percent in Q4, worse that expectations for a 0.5 percent decline. Australia CAPEX in Q4 stood at A$27.579 billion. The decline followed a drop of 3.3 percent in the September quarter that was revised lower from an initial estimate of 4 percent. CAPEX is not expected to get much better in the next financial year.

Building and structures component was likely the main drag. Capex for buildings and structures fell 4.1 percent on quarter and 25.5 percent on year to A$15.314 billion. However, plant and equipment spending (which flows directly into GDP) was up 0.4 percent. This suggests that equipment spending should be a positive contributor to Q4 GDP.

The first estimate for firms’ 2017-18 CAPEX plans was also below market expectations (AUD80.6bn vs AUD84.8bn). The decline in the mining sector is seen as the main reason behind majority of this weakness. However, the outlook for non-mining investment is more positive. Australian businesses’ raw spending estimate for 2016-17 has been revised upward and now implies growth of 0.2 percent y/y, compared to the 3.5 percent y/y decline expected three months ago.

Mining CAPEX is now at the lowest level since December 2009, reflecting the ongoing effect of the unwinding mining infrastructure boom. Mining sector is now expected to see a 19 percent y/y decline in spending in 2017-18 which would be the third successive year of around 20 percent declines.