Business investment beats expectations as the economy shifts from mining dependency
The long anticipated economic transition away from the resources sector appears to be gaining momentum with stronger-than-expected investment in the June quarter.
Key points:
Capex spending rises for the second quarter in succession having been in decline for more than a year Rises in manufacturing and non-mining capex offsets a fall in mining investment Spending expectations for 2017/18 jump 18pc from three months ago to $102 million Private sector capital expenditure (capex) rose by 0.8 per cent over the quarter, seasonally adjusted, eclipsing market forecasts for a 0.2 per cent rise.
Importantly, the forward-looking expected expenditure survey found businesses were far more bullish about its spending plans.
The third estimate of spending for the 2017-2018 financial year came in at $101.7 billion, almost 18 per cent higher than the second estimate three months ago.
However, expectations are still 3.6 per cent lower than at the same time last year, while total capex is 3 per cent lower compared to the June quarter in 2016.
Capital Economics analyst Paul Dales noted capex is likely to be around 30 per cent lower than the 2012-2013 peak.
"We shouldn't get too carried away," Mr Dales said. "So investment isn't going to power the economy forward. But the outlook for investment is certainly brighter than it has been for a number of years."
The rise follows the revised-up improvement in the first quarter, after more than two years of slowing investment as big resources projects were completed and the mining boom rolled over.
Green shoots appearing
The Reserve Bank, which has been looking for non-mining sectors to pick up the economic slack, would no doubt be pleased by the composition of the Bureau of Statistics' quarterly trend data.
Manufacturing: +1.4pc Building and structures: +2.8pc (Mining buildings -3.1pc, manufacturing buildings +9.8pc) Equipment, plant and machinery: +2.7pc Other industries (mainly services): +2.8pc Mining: -2.8pc Within those figures, the $12.5 billion increase in equipment, plant and machinery will flow directly into next week's release of second quarter GDP result and was the strongest result in three years.
Deutsche Bank's Adam Boyton described the results as solid, but said the positive news in investment expectations required an element of judgement.
"With the mining investment withdrawal now largely complete, that expected growth in non-mining capex should see business investment make a moderate contribution to GDP growth over the coming year," Mr Boyton said.
"With a large share of investment imported, however, much of that growth will also leak offshore in the form of imports." Citi's Josh Williamson said the data shows there are green shoots of recovery.
"We are cautiously optimistic that this represents the end of mining investment hangover and some sustained signs of life in services investment," Mr Williamson said.
Mr Williamson noted the Reserve bank was more likely to be pleased than exuberant and the data would do little to change interest rates expectations.
A graphic showing capex spending by sector since 1994
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