Aus GDP looking weak, capex outlook poor

The latest release of the ABS capex survey was really just a continuation of the trends we saw back in March.  But because forward estimates are now closer to the likely reality than 6 months ago, commentators and forecasters are giving these weaker data more weight.

First of all, these data along with the construction data released a couple of days ago suggest that investment will again be a small drag on growth in Q2.  There was a huge difference between the construction work done data and that for building and structors in the private capex survey. The difference being the capex survey records changes of ownership, while the construction work survey records purely building activity.  It is the construction work done data that feeds into GDP.

With consumption flat  and net trade unlikely to be as positive as previous quarters, GDP should be weaker than the 0.5%QoQ seen for the last few quarters.

The forward estimates for the capex survey showed that the most recent estimate for FY 2014 was weak when comparing it to the same estimate this time last year and is about on par with actual spending in FY13 on an unadjusted basis.

The YoY comps on this estimate are particularly negative, with expectations this time last year still very strong, with expectations (and activity) taking a turn for the worse into the end of 2013.

This is mostly clearly seen in the capex expectations for the mining sector, which showed a big drop off from the third to the forth estimate for FY13.

I would be very surprised mining capex was higher in FY14 on a nominal basis than it was in FY13 as these data are suggesting at face value.  To be sure, actual mining capex is shrinking fast and mining company margins are still under huge pressure.  Any listed company seen spending more on capex this year than the last will be under a lot of pressure.

Of particular interest to the RBA is how the rest of the economy is faring.  Manufacturing investment intentions remains depressed despite the fall in the dollar, which will likely take more time to filter through to improved conditions.  Other industries are also a little more muted in this current estimate.

The RBA has pointed out here that the capex survey captures a smaller portion of ex-mining than it does mining, so its important to supplement this with other indicators.  Other measures of business confidence have also been weak, so its likely that the Bank will have to cut rates further to help combat the drain on growth from shrinking investment.