Capex Survey

Capex survey points to further falls in investment – Dec qtr 2015

The Australian capex survey results for the December quarter are disappointing on all levels. Capex remains firmly lower than last year, forecasts are for further declines in the next two quarters and the first view of 2017 looks like capex will continue to fall. There is one small bright point – actual December capex increased over September. This may be positive for the December quarter National Accounts. The reason for the increase can be traced back to activity in NSW and unfortunately, the forecasts by business suggest that it is not likely to continue.

Estimate 5 for capex in the 2015/16 financial year highlights that total capex is still expected to fall by -17% or $26.6b below last year

Expected capex for the full financial year to June 2016 is forecast to come in at $124b, which is 17% below last year. So far, the Sept plus Dec 15 capex actuals are tracking at -17.8% below the same two quarters last year in real terms and -15% in nominal terms.

The benefit of estimate 5 data is that it is made up of 50% actuals and 50% forecast. The forecast period now looks out over a shorter time frame (next 6 months) so is becoming a more accurate view of capex plans:-

Source: ABS

The decline in capex for this financial year, at estimate 5, is looking like it might reach levels not seen since the last recession in 1991/2.

It doesn’t matter whether you look at capex expectations by industry or asset type – ALL areas are contributing to the decline. But the decline is being led by Mining and Buildings and Structures:-

Source: ABS

The only positive in this is that expected capex in Manufacturing doesn’t look like it will decline as much as it did last year. Apart from that, capex in Other Selected Industries and Mining will fall faster than last year as well.

But are the actuals in the GDP results following the capex survey? The data is only up to the Sept qtr and for the moment, yes, private capital investment is following the lead of the capex survey. But we haven’t seen the larger falls in capex that the survey is forecasting. That said, capex has been slowing, then declining since 2012:-

Source: ABS

At estimate 5, we have two quarters of actuals and two quarters of forecasts for capex. The Dec quarter actuals came in higher than the Sept qtr actuals and this could be positive for GDP in the Dec qtr. I’ll come back to this in more detail shortly. But this means that the bigger falls in capex are forecast for the last two quarters of the 2015/16 financial year (which I’m calling ‘Half 2’ – H2 in the table below). From ABS 5625.01(a) and 5625.01(b):-

Actual Capex for H1 v Forecast Capex for H2 2015/16 Financial Year

Source: ABS, $ M, original, current prices

Across every industry, businesses are forecasting capex in the March and June 16 quarters to be between 15 and 20% below capex for the first half.

These forecasts for the March and June 16 quarters do not compare well with actual capex for the same quarters last year either:-

Actual Capex for Mar & Jun 2015 v Forecast Capex for Mar & Jun 2016

Source: ABS, $ M, original, current prices

I’ve outlined before that the Capex Survey (what this post is based on: ABS 5625) doesn’t cover all industries and tends to overstate the size of Mining. The industries that are excluded are: Agriculture, Forestry and Fishing (Division A), Public Administration and Safety (Division O), Education and Training (Division P), Health Care and Social Assistance (Division Q), Superannuation Funds (Class 6330).

The size of the capex change tends to be overstated in the survey compared to the actuals in the National Accounts, but are directionally in line. The Capex survey data is used in the development of the quarterly National Accounts.

The first look at expected capex for 2017 looks just as poor

“Non-mining business investment is forecast to pick up in the second half of the forecast period, reflecting the improvement in domestic demand”, RBA, Statement on Monetary Policy, February 2016

Estimate 1 for the next financial year 2016/17 was also released with the December data. This is a 100% forecast and is looking further out to the full financial year 2016/17, so its accuracy is lower than later estimates.

The view at estimate 1 tends to understate final capex. So adjusting the estimate using the 2016 realisation ratio for estimate 1 (which bumps up the estimate by 20%), we get our first capex estimate for 2017 of $99b. Let’s assume that 2015/16 capex spend comes in at the estimate 5 forecast of $124b. That means that estimate 1 is pointing to a further 20% fall in capex for 2016/17.

The falls in capex at estimate 1 are across the board as well:-

  • Mining – estimate 1 adjusted upward based on a +3% realisation ratio = $35b, which represents a further 33% decline on current forecast for mining capex of $53b in this 2015/16 financial year
  • Manufacturing – estimate 1 adjusted upward based on a +27% realisation ratio = $8.3b, which represents a further 1.1% decline on the current forecast for this financial year
  • Other Selected Industries – estimate 1 adjusted upward based on a +49% realisation ratio = $62b, which still represents a further 1.5% decline on the current forecast for this financial year

(The realisation ratios that I’ve used here are the larger of the last 5 years)

But according to the RBA in the latest Statement on Monetary Policy Feb 2016:-

“The ABS capital expenditure (Capex) survey of investment intentions and the Bank’s liaison point to a sharp fall in mining investment in 2015/16. The subtraction from GDP from lower mining investment is expected to peak this financial year.” RBA, Statement on Monetary Policy February 2016

Here’s hoping that the later estimates of the 2016/17 financial year capex improve, because so far, the falls for next year are looking just as bad as this year.

But actual capex in the survey INCREASED in the Dec quarter

It looked like there was a spot of good news in the capex survey data. Actual capex in the December quarter grew by +0.8% in real terms. A turnaround possibly? It unfortunately didn’t take long to see that this is all driven by one state – NSW, which contributed +1.97% points to the +0.8% quarterly increase in actual capex. The only other states to make a positive contribution to growth in the latest quarter were VIC and SA – and contribution to growth was small at best.

Source: ABS

But its nots looking like NSW is on a new investment trajectory either – the latest quarter of higher growth seems like a function of a lower result in the Sept qtr.

Source: ABS

Capex in NSW is still 8% below its 2011 peak in real terms and 4% below the Dec 14 quarter (same time last year).

Reverting to current prices, capex in NSW for the next two quarters is also forecast to be 18% lower than in the actuals in the Sept15/Dec15 quarters. NSW capex in Mar 16 + Jun 16 is forecast to be $11,051m versus the Sept 15/Dec 15 actuals of $13,544m. In other words capex in NSW is not likely to continue increasing in this financial year.

With capex falling and business continuing to forecast lower capex for 2017, the signs for the Australian economy are not good. While mining has mostly been leading the falls, the declines in capex are now evident many across the other industries – which suggests that the ‘transition’ has so far been tepid at best. Business remains wary of investing to increase capacity in light of overall lower growth.

Capital expenditure in Australia continues to fall – Sept 2015

Private capital expenditure in Australia continues to decline and there is little sign of a turnaround in the coming year.

We always knew that capex would be impacted as the commodity boom started to shift into the more operational phase of the commodity cycle. The recently released National accounts show a continued decline in real capital expenditure (Private Gross Fixed Capital Formation) of -4%, subtracting -0.9% pts from the latest annual GDP growth. Most of that decline was driven by a fall in “engineering construction” as a result of this transition in the phase of the mining boom.

What was hoped for by the RBA was that a ‘rebalancing of growth’ could be engineered by lowering interest rates to stimulate non-mining investment and by weakening the AUD. We now have lower rates and the AUD has depreciated to levels that should improve our export competitiveness. Rather than see a continued pick-up in non-mining investment activity, the latest business capex expectations showed that capex intentions outside of Mining for the next financial year are also likely to fall. The quarterly Survey of Private Capital Expenditure (capex) showed that while mining capex is expected to fall by -37%, non-mining capex is also expected to fall by -5%. Overall, capex is expected to decline by 23% in 2015/16. At a total level, this is a fairly significant decline.

The issue in Australia is that the lack of investment growth to help take up the slack now left by lower mining investment highlights a lack of confidence in future growth. This quote from Glenn Stevens (RBA Governor) is as relevant today as it was a year ago:-

“…any plans for growth that might be in the top drawer remain hostage to uncertainty about the future pace of demand”

  • Glenn Stevens Governor RBA, testimony to the Standing Committee on Economics, 20th Aug, 2014

And now, a year later:-

“The missing ingredient continues to be a lift in non-mining business investment, where we are still waiting for convincing signs of a pick-up”

  • Philip Lowe, Deputy Governor RBA, Speech to the Committee for Economic Development of Australia (CEDA) 9th Sept, 2015

Just how bad is the situation with capex?

So far, we’ve had eight (8) consecutive quarters where total private capex has declined (annual % chg based on latest qtr versus the same qtr previous year).

Annual capex growth has gone from a high of +17% in 2011 to a -4% annual decline in the latest June 2015 data.

Source: ABS

From a long term perspective, declines in capex have been infrequent and part of a broader economic slow-down. The capex decline so far is low compared to historical standards, but expected capex for 2015/16 could be more in line with previous steeper declines.

The split between mining and non-mining capex is interesting.

Source: ABS

Whilst the value of mining capex has fallen sharply since 2013, it looks like non-mining capex has started to pick up at the same time – helped in part by lower interest rates and the falling dollar. That said, growth in non-mining capex has been, on average, lower since the end of the mining investment boom, growing at +3.3% on average (between Mar 2013 and June 15) than during the main investment boom years (2000-2012) when non-mining capex grew at +4.2% on average. More recently, while there was some acceleration in non-mining capex growth throughout 2014, that momentum has stalled during 2015.

What has contributed to the decline in private investment?

According to the latest GDP data, the single largest contributor to the decline in private capex is in non-dwelling construction. This is the single largest area of private capex spending, accounting for 35% in the latest quarter. Within non-dwelling construction, it has been engineering construction that has declined significantly – this is the type of large scale construction supporting the development of major mining projects. The contribution of non-dwelling construction to annual private capex growth has declined further in the latest quarter:-

Source: ABS

The only area that has made a more significant, and positive, contribution to private capex growth is Dwellings – which covers construction of new dwellings and additions/alterations to existing dwellings. But the contribution of dwelling construction to overall private capex growth has also slowed between the last two quarters. Again, not a great sign, given we’ve got record levels of lending for housing and very low interest rates. Construction of new dwellings accounted for 25% of private capex spending in the latest quarter.

The one piece of good news was in machinery and equipment expenditure. This is also one of the bigger areas of private capex, accounting for approx. 20% of private capex and was one of the few areas where contribution to overall capex growth improved.

So what does the future hold?

The June 2015 Capex Survey indicates more declines to come in 2015/16

As I’ve pointed out in previous posts, the Capex Survey is not a comprehensive representation of all new capital expenditure intentions in Australia. The dollar value of the capex intentions and actuals, represent just over 40% of the above more comprehensive investment element in GDP (Private Gross Fixed Capital Formation data used above). It still useful in providing some indication about the general direction of intended capex spending across a range of industries. Industries not included in the survey include agriculture, forestry and fishing, education, health and community services and capex on dwellings by households.

This latest survey for June 2015 covered actual capex for the full year 2014/15, as well as the latest forecast capex for the year 2015/16 called estimate 3. Estimate 3 contains a forward view of the next four quarters of capex – at this stage, the data for all next four quarters are estimates (no actuals yet).

For the full year 2014/15, actual capex included in the survey declined by 4.7%, or -$7.3b. Note that this is larger than the -2.6% in latest GDP data, when calculated in the same way.

Unfortunately, the latest forecast for capex in 2015/16 holds little hope that this will improve:-

Source: ABS, est 3 2015/16 not adjusted using realisation ratio

Estimate 3 for expected capex in 2015/16 signals a possible fall of -23% in spending, or a decline of -$39b. The chart above also highlights the concerning trend of this leading element.

It’s fair to say that these expectations have tended to ‘overshoot’ the final ‘actual’ to both the upside and the downside. So at worst case, actual capex will follow that lead, but is not likely to fall further than that.

The other concerning point from the capex survey is the composition of industries forecasting a decline in spending in the following year:-

Source: ABS, note realisation ratios used mining = 0.89, manufacturing = 1.07, other selected industries = 1.18, total = 1.0

The fall in mining capex has been expected for a quite a while. That said, the expected decline in 2015/16 is fairly large at -37% or -$28b.

The continued decline in capex for manufacturing is an ongoing issue. The high AUD hurt Australian manufacturers during the mining boom and the wind back of industry protection policies over the last several decades has seen the manufacturing sector shrink in size. No doubt globalization has also had an impact on the broader sector as much manufacturing has been outsourced to lower cost countries. The Australian dollar has now depreciated by close to 30% and capex still looks to remain depressed in the short-term. It won’t help that car manufacturing will also cease in Australia by 2017.

A lower AUD is no magic bullet as it will take time to rebuild export businesses and relationships. Manufacturers, and more immediately, service providers, in Australia that compete with imports may see a more immediate effect as the falling AUD filters through the supply chain. But only once there is consistent stronger growth, will capex businesses cases start to look more viable. The one downside to a weaker AUD is that import of capital equipment will become more expensive.

The one bright spot in the survey had been capex for “other selected industries”, which grew by +12% in 2014/15. Expected capex for ‘other selected industries’ is now forecast to decline by 5.3% in 2015/16. The ‘other selected industries’ accounts for a significant proportion of the value of capex in the survey and comprises key services industries. Growth in capex for this group had been stronger, relative to mining and manufacturing, over the last several years.

What does this mean for the Australian economy?

Usually, falling levels of capex are not a good sign for the economy. The fall in investment means that we will likely continue to see lower levels of growth in the economy. This could adversely impact employment, income and output growth.

One possibility is that the fall in mining investment will just be replaced by the increase in commodity exports as major mining projects start to come online. That has been a leading theory of the mining boom, but that’s not what has been happening recently. Part of the issue is that whilst export volumes have been rising, commodity prices have been falling. In nominal terms, net exports have detracted from GDP growth (on an annual basis) over the last five (5) consecutive quarters:-

Source: ABS

The other issue is that if global growth is slowing, then it’s more likely that demand (i.e. volume) for commodities will also fall because they are usually inputs into the production process.

Could housing construction fill the gap? There are still a few important headwinds. APRA is in the process of curbing investment loan growth, rightly recognising that the high proportion of mortgages on bank’s balance sheets represents a ‘concentration risk’ to the financial system. The residential dwelling construction component, whilst growing fast, is still not big enough to fill the potential gap left by mining. Putting aside any question of whether housing construction should fill the capex gap, growth in dwelling construction would need to accelerate from currently 23% to roughly over 40% (assuming that mining investment halves from here and all other components continue to grow at the current rate). With housing lending and household debt already at record highs, interest rates already very low and real wages and income stagnant at best, Australia would probably need to see greater levels of foreign investment in new dwelling projects for this to happen.

Could public infrastructure spending help fill the gap? This might not fill the entire gap, but at least well targeted investment on infrastructure projects would actually be good for the productive capacity of the economy in the future. The government has access to some very low interest rates, but it seems to lack any sense of urgency or leadership to get something done on both the infrastructure and reform fronts.

“A low exchange rate, low growth in wages and low interest rates are not the basis for sustained increases in investment and output. They can certainly help during the adjustment phase, but ultimately we will be better off if increased investment is driven by high expected returns rather than by the low cost of finance or low wages. This is why the focus on improving the climate for business investment is so important. There is no magic bullet here, but surely the investment climate would be improved through a strong focus by both business and government on innovation, productivity, human capital and entrepreneurship, topics that I have spoken about on previous occasions.”

  • Deputy Governor of the Reserve Bank of Australia, Philip Lowe, Speech to the Committee for Economic Development of Australia (CEDA) 9th Sept 2015

Fundamentally, the missing ingredient is growth. This is why private capital investment growth is an important indicator. In a most simplistic way, it’s a sign that business is expecting growth – growth in sales, consumption and/or profits. Investment might take the form of new equipment to expand production or the introduction of a new technology/innovation to improve productivity. Either way, it’s about expanding the productive capacity at a firm-level in order to take advantage of growth opportunities – this is the cornerstone of economic, employment and productivity growth.

Meanwhile, in Australia…

“…firms are more focused on paying dividends than on investing in the future of their businesses or the country. At 91 per cent, the proportion of ASX-listed companies paying a dividend is now the highest on record, up from 83 per cent five years ago. Most of them increased the dividend in the latest year despite flat or falling profits”, Business Spectator, Too much Talk, Not Enough Action, 1st Sept 2015

Capital Expenditure Survey June 2014

There are two important features of private capital investment in Australia at the moment. The first is the declining contribution of private investment to economic growth over the last three (3) quarters. The second is the unwind of mining capex growth which is currently underway. The two are related, of course. Over the last few years, monetary policy has been geared towards creating the financial environment to encourage a ‘re-balancing’ of private business investment towards non-Mining capex in order to off-set the much anticipated declines in Mining capex. The June survey of private capital expenditure shows that we are, to some degree, seeing growth in non-mining investment via construction, namely dwelling construction. The modest growth in the June quarter should have been no surprise because growth in new credit for business has been accelerating over the last year, as several previous posts have highlighted. But growth in new credit for business still remains well below pre and post GFC highs suggesting that business investment remains subdued. But is it really enough to say that a continued and increased emphasis on dwelling construction qualifies as a ‘re-balancing’ for the economy?

“When we look ahead, a key feature of the outlook, as everyone knows, is that the capital expenditure phase of the mining boom is winding down and the export phase is gearing up. The fall off in investment spending by resources companies has a long way to go yet, and it will probably accelerate in the coming year. This impending further fall is captivating most of the commentators right now. Meanwhile, growth in non-mining activity has been increasing. A recovery in dwelling investment is well underway, with spending in this area up by about eight per cent over the past year. Forward indicators for non-mining business investments suggest a modest improvement over the coming year, though intentions have so far remained somewhat tentative in this area.”

Glenn Stevens, Governor RBA, testimony to the Standing Committee on Economics, August 20, 2014

The survey of capital expenditure is not a complete picture of all sectors actual or expected investment intentions. It’s useful to understand what is included in the survey in order to understand the numbers. One way the survey measures capital expenditure and intentions is by ‘type of asset’, specifically, 1) Buildings and Structures and 2) Equipment, Plant and Machinery:-

Buildings and structures: Includes industrial and commercial buildings, houses, flats, home units, water and sewerage installations, lifts, heating, ventilating and similar equipment forming an integral part of buildings and structures, land development and construction site development, roads, bridges, wharves, harbours, railway lines, pipelines, power and telephone lines. Also includes mine development (e.g. construction of shafts in underground mines, preparation of mining and quarrying sites for open cut extraction and other developmental operations primarily for commencing or extending production). Excludes purchases of land, previously occupied buildings and speculatively built projects intended for sale before occupation. (Source: ABS)

Equipment, plant and machinery: Includes plant, machinery, vehicles, electrical apparatus, office equipment, furniture, fixtures and fittings not forming an integral part of buildings, durable containers, special tooling, etc. Also includes goods imported for the first time whether previously used outside Australia or not. (Source: ABS)

On a real value basis, the capex survey represents approx. 43% of the value (real) of Total Private Fixed Capital Formation (GFCF) and 60% of the Total Business Investment element of total private GFCF (full year at Mar 2014) in the National Accounts.

The other way the survey measures capital expenditure and intentions is by ‘industry’. The National Accounts estimates include capital expenditure by all private businesses including agriculture, forestry and fishing, education, and health and community services industries and capital expenditure on dwellings by households. Data for these sectors are excluded from the capex survey.

June Survey Results – Actual Private Capital Expenditure

Where possible, the figures used are ‘chain volumes’ to remove any price effects.

There is a significant difference in direction between the trend and the seasonally adjusted headline growth figure for the June quarter – I’ll present both throughout this post.

  • Seasonally adjusted, total capex grew by +1.1% (Jun ’14 v Mar ’14)
  • Using trend data, total capex declined -1.7%

Looking at both measures over time provides a better sense of how they move together and how the seasonally adjusted data tends to be a little more volatile.

Source: ABS

No matter which data you look at, trend or seasonally adjusted, there is a common theme at an industry level – Mining and Manufacturing continue respective recent declines and the growth trajectory continues for Other Selected Industries:-

Source: ABS

Below is a more detailed breakdown at industry level looking at both seasonally adjusted and trend data from the recent capex survey:-

Annual $’s M Annual % Chg Qtr % Chg
(Jun 14 v Mar 14)
Qtr Chg $’s M’s
Total Capex
Seasonally Adjusted
$153,413 -3.5% +1.1% +$399
Mining $86,824 -6.5% +0.2% +$42
Manufacturing $8,820 -6.8% -6% -$134
Other Selected Industries $57,769 +2.0% +3.4% +$491
Total CapexTrend $153,609 -3.8% -1.7% -$665
Industry View
Mining $87,207 -6.8% -4.1% -$872
Manufacturing $8,796 -8.5% -2.8% -$61
Other Selected Industries $57,591 +2.0% +1.8% +$263

Source: ABS

The impact of the decline in Mining capex over the last year is evident with total capex declining by -3.5% (seas adjusted). Only Other Selected Industries has been a positive contributor to capex over the last quarter and over the last year (looking at both measures), but this hasn’t been large enough (yet) to fill the gap left by the decline in mining investment (when using only the survey values).

Rebalancing underway?

There are two ways to drill down into the composition of growth in Other Selected Industries. The first is by breaking down Other Selected Industries into asset type. Using this view, its clear that Buildings and Structures have been the major driver of growth over the last four (4) quarters and growth continues to accelerate. Growth in Other Selected Industries – Equipment, Plant and Machinery remains lacklustre. The bigger of the two elements is Plant, Machinery & Equipment, but the majority of the growth in Other Selected Industries is coming from Buildings and Structures.

Source: ABS

The second view of Other Selected Industries is by industry type. Using this view shows that the main contributor to growth was from Construction.

Source: ABS

Cross referencing these results with the respective elements of the more complete view of Private GFCF in the National Accounts highlights the role that dwelling construction is playing overall. There has been a significant reversal between the growth in dwelling and the growth in non-dwelling construction & investment over the last two years. Note – I’ve used the ‘non-dwelling construction – new buildings’ element of the total ‘non-dwelling construction’ component of Private GFCF in order to remove the large influence from Mining in the construction engineering component.

The slowing growth in non-dwelling construction and the accelerating growth in dwelling construction over the last two (2) years, suggests that so far, ‘re-balancing’, or accelerating growth, has been focused on residential dwellings. Over the last year, GFCF dwellings has contributed twice the amount to total growth in Private GFCF than non-dwelling construction. Over the latest quarter (v. same qtr PY), that figure jumps to just over 7 times the contribution to GFCF growth. The circled area in the chart below highlights the shift in growth between the two elements:-

Source: ABS

The National Accounts breaks down investment spending into Dwellings (new and used dwellings and alternations and additions made by households) and Total Business Investment, which includes the non-dwelling construction.

In the recent past, total Private Business Investment has been the major driver of the historically high levels of investment growth – due to Mining. Over the last ten (10) quarters though, we’ve started to see the contribution of total private business investment to growth completely reverse. Its gone from driver of growth, to driver of decline in total Private GFCF (grey bars in the chart below):-

Source: ABS

Over the same last 3 quarters, you can see that the dwellings component (blue bars, above) has started to make a much larger, and growing, contribution to overall growth in Private GFCF.

Is the growth in ‘Other Selected Industries’ the start of the rebalancing that the RBA has been looking for?

The bigger question is whether this truly represents a rebalancing of investment for the future of Australia. This is a matter of opinion. Most of the growth in private sector credit is already going into residential mortgages (both owner occupier and investor) – so this private construction investment data seems to suggest that we are merely continuing to focus on residential dwellings. The upside is that new dwelling construction is likely to result in employment growth. But continued growth in residential dwellings will rely on continued acceleration in household debt – and there is some risk associated with that given that we are already close to historically high levels of household debt.

The issue remains that business investment has continued to make a negative contribution to growth over the last three (3)  quarters. If business investment on aggregate is not growing, and business is not increasing its productive capacity, then this will likely have important implications for the growing pool of underemployed people in the Australian economy (see latest post on employment). The economy is currently growing, but below the level required to start to absorb some of this growing underemployment.

“But the thing that is most needed now is something that monetary policy cannot directly cause. What I mean is we need more of the sort of so-called ‘animal spirit’, or confidence if you like, that is needed to support not just a repricing of the existing stock of assets, but the investment that adds to that stock of physical assets. There are some encouraging signs here, as you said, Chair. Nonetheless, if reports are to believed, many businesses remain intent on sustaining a flow of dividends and returning capital to shareholders and are somewhat less focused on implementing plans for growth. Any plans for growth that might be in the top drawer remain hostage to uncertainty about the future pace of demand. That is actually not a new phenomenon; it is in some respects pretty normal at this point of the cycle. There is always a period in which people can see that many of the conditions for expansion are in place but are not yet fully confident that it will happen. This is not confined to Australia: the gap between financial risk taking, and there is plenty of that in the world, and real economy risk taking is a gap that we observe around the world.”

Glenn Stevens, Governor RBA, testimony to the Standing Committee on Economics, August 20, 2014

Expected Capex 2014/15

We continue to pin our economic future on dwellings and so far, expected capex for the 2014/15 financial year sees little change in that direction. At June 2014, the survey shows that expected total capex will come in at approx. $14b lower than 2013/14 financial year. This figure has been adjusted using the realisation ratios.

Source: ABS

Taking a longer term view, this is how the growth of the 2014/15 financial year growth (decline) compares to the historical growth in total capex in the survey.

Source: ABS

There is no doubt that the major contributor to the year on year decline is the slow-down in Mining capex. The worrying element is that, based on the capex expectations, the recent growth in Other Selected Industries – Buildings and Structures is not forecast to accelerate in the 2014/15 period.

Note that some totals will not add to the full amount due to the application of realisation ratios.

Est 3 – Total 2014/15 Fin Year $M Realisation Ratio Adjusted 2014/15 Total 2013/14 Fin Year Actual Diff in $’s
Total Capex 145,158 0.99 143,706 157,869 -$14.1b
Total Mining 81,405 0.87 71,636 90,340 -$18.7b
Mining Buildings/Structures 70,758 0.89 62,974 80,911 -$17.9b
Mining Equip/Plant/Mach 10,646 0.86 9,155 94,29 -$0.3b
Total Manuf 8,032 0.96 7,710 9,201 -$1.5b
Manuf Buildings/Structures 2,607 0.87 2,268 2,675 -$0.4b
Manuf Equip/Plant/Mach 5,424 1.02 5,532 6,526 -$1b
Other Selected 55,722 1.15 64,080 58,328 +$5.7b
Other Sel Buildings/Structures 25,564 0.99 25,308 23,154 +$2.1b
Other Sel Equip/Plant/Mach 30,157 1.28 38,601 34,048 +$4.5b
Total Buildings & Structures 98,930 0.91 90,026 106,740 -$16b
Total Equip/Plant/Mach 46,228 1.12 51,775 51,129 -$0.6b

Source: ABS

The only forecast increase in capex for the 2014/15 financial year is for Buildings & Structures in Other Selected Industries in the table above (before the application of the realisation ratios). Based on the size and direction of these figures, it’s hard to see how the non-resources sector will in fact fill the gap created by the slow-down in Mining capex. It’s true that the survey isn’t the entire view of capex, but I wonder to what degree it’s indicative of the general direction of intentions and sentiment across the economy. We can only hope that the sectors not covered in the capex survey – agriculture, forestry and fishing, education, and health and community services – will take a far more optimistic and aggressive approach to capital investment in the coming year.