Australia | May 28 2009
By Chris Shaw
The economic numbers continue to point to a decline in Australian GDP in the March quarter, the latest being the March quarter capex and capex intentions survey that showed a fall in new capital expenditure in the period of 8.9%.
This was below market expectations for a decline of around 5% and was helped by a 10.8% fall in equipment spending, which was also greater than the market had been factoring into estimates. While spending is actually still 6.8% above year-ago levels, Commonwealth Bank chief economst Michael Blythe notes the bigger picture remains one of mining capex plateauing, manufacturing capex remaining at subdued levels and spending in other sectors falling.
The mining sector outcome may be the most significant as Dean points out the figures show investment spending intentions in the sector have fallen for the first time in this cycle, declining by around 13% in the past three months.
Westpac notes estimates for capex spending in 2009/10 now forecast a total of $76.9 billion, which implies a decline in nominal spending of around 4% and is well below previous expectations for an increase of about 6%. In the bank’s view further downgrades to this figure are likely in coming months given the weak global backdrop, tighter lending standards, weak demand and the recent collapse in business confidence levels.
As ANZ Banking Group senior economist Katie Dean puts it, while the Government’s stimulus measures have stabilised households, they have done little for the business sector, so investment spending is entering the downswing portion of its cycle. This is clear given investment expectations for 2009/10 have fallen by 10% in recent months.
In Dean’s view it remains likely business investment will fall further in coming months, with a decline of as much as 20% possible on her estimates, though an outcome of around 17% regarded as more likely. Blythe is not as pessimistic, noting while Treasury estimates call for a decline of around 18.5% in the coming year his forecast is for a fall of about 9%, which implies Budget forecasts are too low.
(Note how ANZ’s Dean forecasts a decline almost twice as large as Blythe’s, and potentially larger than even Treasury estimates).
While today’s figures were below market expectations, Dean suggests they provide little in the way of new ammunition for the Reserve Bank of Australia and this means there are unlikely to be any further cuts to official interest rates in the short-term.
This doesn’t mean cuts have finished though, Dean continuing to forecast official interest rates bottoming out later this year at a cash rate of between 2.0-2.5%. The Australian dollar did little on the back of the capex numbers, falling very slightly against the US dollar as it trades near what Westpac sees as solid resistance at levels close to US79c.