Australia | Aug 26 2010
By Rudi Filapek-Vandyck
Today's release of new capital expenditure surveys by the Australian Bureau of Statistics provided economists with an unexpected disappointment, in the short term, but also with further confirmation that the outlook for corporate spending remains buoyant.
The latter is very important as it is the corporate sector that will have to cary the baton for ongoing economic growth given government stimulus is being phased out and the consumer remains on the sidelines in the face of much higher interest rates in a relatively short time.
Zooming in on the short term, new capital expenditure for June fell well short of market expectations with a registered fall in the order of 4%. The market was expecting to see a rise of 4%, so one can probably imagine the initial disappointment.
The segment of Equipment, plant and machinery, most important because it feeds into the national accounts, also disappointed with a fall of 4.1%.
The immediate result is that economists will be lowering their Q2 GDP estimates. Some of them had become very excited, projecting a booming figure in excess of 1% (quarterly). These estimates should now be considered in decline.
One such example is the team of economists at Westpac who report today they will soon be revising down their current forecast of 1.2% growth on a quarterly basis (3.1% on annual basis), most likely to 0.9% (which translates into 2.8% anually).
But the good news came with the BAS' third estimate of expected expenditure. While former estimates for the fiscal year up to June 30th 2010 were slightly lowered, the Australian Bureau of Statistics substantially raised its previous estimate for capital spendind in the present year ending June 30th 2011.
The new estimate stands at $123,334m, which is 17% higher than previously estimated, and no less than 24.3% above what capex is expected to have been in 2009/10.
As explained this morning by economists at the Commonwealth Bank, the Australian economic script for the next year is a capital-spending-intensive story with a heavy construction focus. Yesterday's construction work done data, as well as today's capex intentions for the year ahead fit in perfectly with such a scenario.
Economists at ANZ Bank point out, the 5-year realisation ratio (an assumption of how investment intentions translate to actual spending based on history) suggests that today's capex intentions will translate into a 33% increase in capex in 2010-11.
Within this, reports ANZ Bank, mining capex is expected to rise by over 70%, and non-mining by around 13%. By component, capex on buildings and structures is expected to increase by 50%, while equipment, plant and machinery capex are forecast to rise by about 11%.
