Capex slide signals end of mining boom
While private capital expenditure for the March quarter was weaker than expected, Bureau of Statistics figures showed stronger spending expectations for the 2013-14 financial year, including a slight lift in mining investment projections.
The figures came as building approvals rose a seasonally adjusted 9.1 per cent in April, following a 5.5 per cent fall in March.
Approvals soared 18 per cent for private sector units and rose 2.5 per cent for private sector houses from the previous month.
Economists said the data reduced the likelihood the Reserve Bank would cut rates again at its board meeting on Tuesday, with financial markets lowering expectations of a 25-basis point cut to 18 per cent.
HSBC's chief economist for Australia, Paul Bloxham, said the estimates pointed to a plateau in mining investment rather than a sharp fall. "The mining story is still supportive of growth. That's important because that means there is more time for the rest of the economy to start picking up and take over in terms of being the key drivers of the economy," he said.
Mr Bloxham said the rise in building approvals was consistent with a pick-up in the non-mining sectors of the economy. Together with improved retail sales in the first quarter, they were also reflective of the impact of lower interest rates on the economy, he said.
Capital expenditure for the March quarter fell 4.7 per cent - the sharpest fall since the financial crisis - and was led by a fall in building and equipment investment. Economists had expected a 0.5 per cent rise.
Projected business spending for this financial year was $163 billion, 2.6 per cent higher than the previous year.
Second estimates for the following financial year were $156.5 billion, 9.8 per cent lower than corresponding estimates the year before but 3.4 per cent higher than first estimates.
Miners lifted their spending projections 2.7 per cent higher to $101.9 billion.
JPMorgan economist Ben Jarman said the weak March quarter data was expected to put pressure on first-quarter GDP figures released next Wednesday.
But looking ahead he said the capital expenditure estimates were "fairly reasonable". "In the context of a supposedly very sharply fading mining investment story and some weakness from manufacturers, [it] was probably a slightly more upbeat position than people were fearing," Mr Jarman said.
ANZ's head of Australian economics, Justin Fabo, said the weakness in mining investment was more likely to be reflected from mid-2014, which is beyond the current figures.
"While mining investment looks to be holding up in 2013-14 and may not have peaked yet, more of this represents very large gas projects, which have a relatively higher import component than other mining projects [and] so will benefit the domestic economy less," Mr Fabo said.
Deutsche Bank economist Phil O'Donaghoe said although the fall in 2013-14 investment intentions was expected, it was important to note that non-mining investment was driving the drop.
Frequently Asked Questions about this Article…
Economists say the mining investment boom appears to be in its final days after private capital expenditure fell in the March quarter. However, the article notes this looks more like a plateau than a sharp collapse — miners actually lifted spending projections and the mining story is still seen as supportive of overall growth.
Capital expenditure for the March quarter fell 4.7%, which was the sharpest quarterly fall since the financial crisis. Economists had expected a 0.5% rise, so the result was significantly weaker than forecast.
Projected business spending for the 2013–14 financial year was $163 billion, which is 2.6% higher than the previous year, according to the figures reported in the article.
Yes. Miners lifted their spending projections by 2.7% to $101.9 billion, according to the article’s reported estimates.
Building approvals rose a seasonally adjusted 9.1% in April, with private sector units up 18% and private sector houses up 2.5% from the prior month. Economists said this pickup in approvals is consistent with stronger non‑mining activity and reflects the impact of lower interest rates on the economy — trends everyday investors may want to watch as shifts in sector strength can affect markets.
The article reports economists believe the data reduced the likelihood the Reserve Bank would cut rates again at its next board meeting. Financial markets lowered the probability of a 25‑basis‑point cut to about 18%, according to the article.
HSBC’s Paul Bloxham said the estimates point to a plateau in mining investment rather than a sharp fall and that mining remains supportive of growth. JPMorgan’s Ben Jarman said the weak March quarter could pressure first‑quarter GDP but called the capital expenditure estimates fairly reasonable. ANZ’s Justin Fabo warned that mining weakness may show from mid‑2014 and noted many projects are large gas developments with higher import content. Deutsche Bank’s Phil O'Donaghoe said non‑mining investment was driving the drop in 2013–14 investment intentions.
The article suggests a transition: mining investment is cooling toward a plateau while non‑mining sectors (building approvals and retail sales) are showing signs of pickup. For everyday investors, that means monitoring broad economic indicators — like business spending projections, building approvals and upcoming GDP figures — because they can signal which sectors may be gaining momentum as drivers of growth.
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