Capex Preview – First estimate of 2015-16 spending is key

Capex Preview – QIV 2014

• The RBA’s latest downgrade to growth forecasts were based on a more negative outlook for non‑mining capex.  In this context, the first estimate of 2015‑16 capex spending plans are critical.
• On our forecasts, Estimate 1 of 2015‑16 capex spending will come in around $120bn.  This outcome would be consistent with a sizeable drop in mining capex and a moderate lift in non‑mining capex.
• We expect the fifth estimate of 2014‑15 spending plans to come in near $153bn.
• Actual QIV capex is expected to fall by 4% over the quarter and detract from QIV GDP growth.

The QIV capex survey is due on Thursday 26 February.  In this release we receive the actual QIV capex data, the fifth estimate of 2014‑15 spending and most importantly, the first estimate of 2015‑16 spending.  In the last capex survey published three months ago, mining spending plans were downgraded while non‑mining plans remained intact which has been a similar theme in recent capex surveys.

For the upcoming capex survey, firms’ responses were recorded over January‑February.  Some positive influences for business confidence and conditions over the period were a lower Aussie dollar, lower oil prices and a cut in interest rates.  The negatives have been domestic political uncertainty, ongoing global growth concerns and continued weakness in commodity prices.  On balance, these influences are a net negative for business conditions which increases the risk of potential downgrades to mining and non‑mining capex plans.  The RBA’s latest downgrades to domestic growth were based around a new expectation that the recovery in non‑mining business investment would occur later than previously envisaged.  The RBA also marginally downgraded the outlook for mining investment because of weakness in commodity prices.

The focus in the next capex print will be on the first estimate of 2015‑16 capex expectations.  The survey is being taken around 5‑6 months before the start of the actual financial year.  At this stage of the year, firms usually tend to underestimatespending.  On our figuring, mining capex is expected to decline by a little over 20% in 2015‑16.  Non‑mining capex should lift by another 6% over 2015‑16 which would signify a moderate recovery.  Based on these outcomes, we expect Estimate 1 for 2015‑16 capital spending to come in at $120bn.  Median market expectations are sitting at $119bn.

For the fifth estimate of 2014‑15 capex expectations, firms are now 6‑7 months into the period so we should get a pretty decent read on expected spending plans.  We expect mining plans to come in around $85bn.  While historically mining firms have tended to upgrade spending expectations at this time of the year, the more recent trend has been a downgrade to capex expectations because of weakness in commodity prices.  We expect the fifth estimate of total capex plans to come in near $153bn (also the market median).  This outcome would indicate a marginal downgrade to expectations in the last capex survey published three months ago.

Actual QIV capex is an important input into national accounts calculations.  We expect to see a decent 4% fall in capex with engineering construction leading the fall.  Plant and equipment capex should be flat over the quarter.

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