Australia | Nov 27 2008
By Chris Shaw
It has been a while since economic news in Australia came in broadly in line with market expectations but today’s capital expenditure numbers for the September quarter did just that, recording a rise of 0.6% against a market consensus range of between 0.5%-0.8%.
In year-on-year terms capex for the quarter was up 15.9%, while since its lows of 2001/02 toal capex has risen almost 150% and has increased its share of national GDP by around 2% over the same period.
As ANZ Banking Group economist Riki Polygenis notes the increase in capex during the quarter was driven by the mining sector, while investment in both manufacturing and other industries fell during the period. The biggest surprise in her view was the fact business investment intentions remain strong at 27% growth for 2008/09, which is down from 35.5% three months ago but still represents confidence in the economic outlook over the medium-term.
One important point Commonwealth Bank chief economist Michael Blythe makes is while spending intentions remain solid the key will be how that translates into actual spending in the months ahead. TD Securities senior strategist Joshua Williamson agrees, suggesting expectations of a 27% increase are far too optimistic given current global financial and economic conditions.
Both Polygenis and Blythe suggest the data, in conjunction with yesterday’s sold construction work done numbers for the September quarter, indicate GDP is less likely to have turned negative in the quarter than had previously been feared.
Growth will be modest at best though, with ANZ forecasting quarterly GDP growth of 0.2% and CBA 0.3%, leading into its forecast of 1.9% growth for 2008 as a whole. Westpac is slightly more bearish, estimating growth of just 0.1% in the third quarter and 1.7% for 2008.
Given this Williamson continues to expect the Reserve Bank of Australia (RBA) to move further on rates and to do it quickly, with his forecast calling for a 1.0% cut when the RBA next meets in December. Again Westpac takes a contrarian view, suggesting there is growing evidence the market may be disappointed in the size of the next rate cut, with today’s capex data providing additional support for this view.