Australia’s capital expenditure grew in Q4/2015, likely to weaken in 2016

Australia's total real capital expenditure in Q4 2015 grew 0.8%, as compared with the 8.4% fall in Q3 2015. The growth was mainly due to the more than expected outcome in mining, likely owing to the volatility of the series. There was a modest growth in real investment in the non-mining sector.

However, the weakness in capex is likely to extend further as the first estimate of private capital expenditure for financial year 2016-2017 came at AUD82.6bn. The survey showed that the nominal private capital is likely to be AUD83bn, as compared with the consensus expectation of AUD93bn.

Even though the first estimate likely underestimates the actual result, the total nominal capex after adjusting for that bias in the survey still fell 24%, mainly due to 35% drop in mining outlays and 8% decline in non-mining investment. Meanwhile, non-mining investment was revised upwardly and is likely to fall 6.1% y/y, as compared with the earlier estimate of 7.9% drop in the financial year 2015-2016.

In Q4, real equipment investment was nearly flat. Hence, real equipment is expected to contribute only slightly to the q/q GDP growth; however, it will subtract 0.4pp from y/y GDP growth because of weakness in previous quarters.

Meanwhile, real non-mining investment grew 2.2% q/q in seasonally adjusted terms in the fourth quarter of 2015, which decelerated the year-on-year drop to 7.5% from the 8.3% decline in Q3 2015. According to the release, non-mining investment for the entire 2015 was revised upwardly, with Q3 revised to -7.4% q/q in seasonally adjusted terms from -8.2%. The Q2 data was revised to a growth of 3.6% from 3.3% growth. The non-mining sector is expected to moderately decline ahead, with the forecast for financial year 2016-2017 revised upwards in Q4's estimate.

In Q4 2015, real investment in the mining sector fell 0.9% q/q sa, as compared with the drop of 9.5% in Q3 and the average decline of 8.8% in the first three quarters of 2015. However, the survey's outlook component continues to indicate towards a sharp drop in mining investment. The better-than-expected result is seen as more of a volatility sign rather than a trend.

"Mining investment as a percentage of GDP should return to pre-boom levels by mid-2016, although the survey outlook for the financial year ahead suggests downside to this view", says Barclays.