• The 4th estimate of 2015‑16 capital spending came in at $120.4bn, slightly better than expected. Mining plans came in at $56b and non‑mining plans are now at $64bn.
• However, business investment will still remain a drag on the economy over the next financial year.
• Capex fell by 9.2% in QIII, to be 20% lower over the past year. Mining fell 10.4% and non‑mining by 8.2%.

There was nothing in last week’s data that indicates a need for the RBA to cut the cash rate in the near‑term.
The overall reading from the QIII capital expenditure survey was mixed. The expectations component looks slightly better compared to three months ago, but still paints a picture of weak business investment in Australia for the next year. Actual QIII capex came in below expectations which will mean that QIII GDP forecasts will probably be revised lower.

2015/16 Expectations

There are always a few moving parts in the capital expenditure release which can make its interpretation difficult. Every quarter, firms who are surveyed give an estimate to their expectations for capital expenditure spending for the current or following financial year (or both). However, spending expectations adjust higher and lower over the course of the year, as macroeconomic conditions vary and firm‑specific factors change. Over the course of each quarter, there are some “normal” trends that we can observe. This allows us to transform spending expectations into expected realised spending across the financial years.

The key component in today’s data is the 4th estimate of 2015‑16 spending. In headline terms, the fourth estimate of total capital expenditure spending came in at $120.4bn. This estimate is 4% higher on the 3rd estimate. After making the necessary adjustments, realised total capital expenditure in 2015/16 looks like it will fall by 24% over the year. This outcome looks a little stronger compared to three months ago, but only slightly so.

The breakdown across the components shows that mining and non‑mining capex plans were both upgraded marginally. Mining capex still looks like it will fall by ~35‑40% in 2015/16. Non‑mining capex looks like it will decline by ~10% over the period. These types of projections are in line with the RBA’s most recent forecasts. There is also a large “confidence interval” in these estimates because of the issues in using realisation ratios. Using historical realisation ratios shows that non‑mining capex could change anywhere between +19% to ‑19% in 2015/16.

QIII Capex results

QIII private capital expenditure fell by 9.5%, slightly worse than market expectations which centred on a fall of 2.9% {CBA(f) ‑6%}. The annual fall in capex is 20%, with mining down 29.6% over the year and non‑mining down 9%pa. The fall in non‑mining capex in annual terms indicates that there could be some further downside risk for business investment over 2015/16. There may also be some downside risk for next week’s QIII GDP numbers.

The post Business investment continues to slide appeared first on AdviserVoice.