Australia: Strong CAPEX report for both Q2 and 2017-18 - ANZ

Daniel Gradwell, Senior Economist at ANZ, explains that it was a strong CAPEX report overall for Australia as Q2 activity came in ahead of expectations, with a solid plant and equipment spend, which will contribute to Q2 GDP.

Key Quotes

“The outlook for 2017-18 investment was also revised upward. Solid reported business conditions appear to be supporting the transition away from the mining sector, with a number of services industries the key beneficiaries.

• CAPEX recorded a better-than-expected 0.8% q/q rise in Q2 (as well as an upwardly revised 0.9% q/q rise in Q1). Importantly, spending on plant and equipment (which flows directly into GDP) posted the strongest result in nearly three years, with growth of 2.7% q/q. This positive result is in line with improved business conditions and capacity utilisation in recent months and will support next week’s GDP result.
• In further good news, the outlook for spending through 2017-18 was revised significantly higher. This was driven by the non-mining sector, with the reported estimate of AUD69.7bn implying that spending will rise by 8.3% y/y. This encouraging result is a welcome change from the past two years of stagnation and suggests that the aforementioned strength in reported conditions is now flowing through to actual investment plans.
• Much of this growth is expected to come from the services sectors. IT, media and telecommunications; finance and insurance; rental, hiring and real estate; and professional, scientific and technical services are all reporting expectations of double-digit investment growth over the next year.
• On the other hand, the mining sector’s contraction is expected to continue, with an implied decline of 22% y/y. Keep in mind, though, that this large percentage decline is coming off a much smaller base, meaning the dollar decline is much less. The end of the mining investment downturn is increasingly in sight.”