We also received data for Q3 showing private capex was pretty strong in the quarter. It is important to remember that only the machinery and equipment component feeds into the Q3 GDP data, which fell 1.5%QoQ.
The construction component in this survey was up a huge 6.3%QoQ, although this is not included in GDP. Rather, the Construction Work Done data released yesterday feeds into the national accounts, and this rose at 2.7%QoQ. This means business investment should add ~0.2ppt to quarterly growth.
As the chart left shows, the latest gauge of 2013/14 capex spend is a little better than last quarter. It seems likely that actual spend will be lower than 2012/13, but this reading suggests it won't be drastically lower.
For me, the risks to this number are too the downside. All mining related projects are under pressure to reduce costs given a much more uncertain commodity price outlook, be it iron ore or LNG prices, where prices are currently good, to coal and gold prices which are very weak. Pressure from shareholders to cut capex and shelve major projects is also intense. Other business surveys, like those from NAB, point to greater weakness than seen in these data.
The chart on the left comes from the most recent BREE assessment of major mining and energy projects, which doesn't have as large coverage as the ABS data, but does provide more detail on specific projects. The report can be found here.
This gels with the ABS outlook, with spending for next year around on part with 2013 if most of the likely projects go ahead. The "possible projects" seem remote at this stage with the report noting that all the projects in feasibility stage 6 months ago have not reached FID stage.
In some ways, this is concerning as it suggests that monetary easing seen to date has yet had a huge impact of investment intentions outside of the mining sector.
This isn't a huge threat to the RBA's forecasts at the moment because the mining part of the equation is ok. But it is proving difficult to turn the rest of the economy around despite very low interest rates.
If the mining investment outlook were to weaken more aggressively in the next 6 months, which is still a very possible risk, its not clear that policymakers will get instant traction elsewhere in the economy if rates are cut further.
So at face value, these data paint a picture of muddle through for Australian GDP rather than something worse. But for me, the risks are still to the downside.
