The ABS capital expenditure survey for the September quarter was released last week. It contained the all-important official update on private business investment intentions for the current financial year. There is both good and bad news in the latest report. But overall it continues to suggest the economy faces a major slump in business investment this financial year – the likes of which has not been seen outside of recessions.
To my mind, the ABS capital expenditure survey (“Capex” report) is currently one of the most important indicators of the Australian economic outlook. Australia is in the midst of a massive slump in mining investment and, so far at least, there has been little sign of the long hoped for pick-up in non-mining investment. We have previously analysed the two previous reports here and here.
The good news is that the latest Capex report suggests a modest upgrade to business investment intentions. The fourth estimate of capital spending for this financial year is down 21.9% from the 4th estimate of spending for 2014-15, compared with a decline of 22.8% in the 3rd estimate of spending compared to that of the previous year’s survey.
Fast forward to 2015-16 estimates, however, and the 2nd estimate of spending was down an equally worrying 25% on the 2nd estimate of 2014-15. But unlike in 1999-200, the 4th estimate of spending for this financial year is still down 20% on the 4th estimate for last financial year. The last time the 4th estimate of Capex spending was comparably weak was in 1991-92 (the 4th estimate of spending was down 18.5% on the previous year’s 4th estimate). Actual business investment in the national accounts that year fell by 10%.
In short, time for a notable upgrade in investment intentions is fast running out! Unless it happens we’re on track for a slump in business investment not seem since the recession years of the early 1990s. In turn, that suggest considerable continued downside risks to economic growth, corporate profits, official interest rates and the Australian dollar.
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