Australian CAPEX plans: A preview - Westpac

Andrew Hanlan, Senior Economist at Westpac provide a brief preview on what to expect from the crucial Australian capex data, which will be published on Thursday at 0130GMT.

Key Quotes:

“The March quarter edition will be released on June 1, including Estimate 2 for 2017/18 and Estimate 6 for 2016/17, as well as actual capex spending for Q1 2017.

Here we provide scenarios for the 2nd estimate for 2017/18. At the outset, we caution that Est 1 and Est 2 for any given year are not always a reliable guide to actual investment.

Although, we are mindful that the headline number which will hit the screens is the -6% (compared with the -3.9% for Est 1 on Est1). Markets may interpret this as being disappointing.

The "less weak" scenario is a stretch in our view. The key point is that for the 2016/17 year, the upgrade between Est 1 and Est 2 was unusually large, at 8.8%, and is unlikely to be repeated.

For 2016/17, the Est 1 survey was conducted in January/ February 2016, which was a time of heightened global uncertainties, weighing on investment sentiment. The iron ore price was at its low, of US$40/t, and China's share market fell 24% in the space of four weeks.

By the time of the Est 2 survey, in April/May, global jitters had eased, with the iron ore price for instance having rebounded to the US$55-60/t range.

Under the "broadly neutral" scenario, an Est 2 of $86bn for 2017/18 is a 6.5% upgrade on Est 1 of $80.6bn. Such an upgrade is a little above the average of the past five years, of 5.7%.”