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If "Everything's Awesome" Why Did Aussie CapEx Just Collapse By The Most In Its 30 Year History
Day after day, the 'stability' in the stock "markets" (specifically in AsiaPac) is posited as 'proof' that China is 'fixed', the worst is over in EMs, The Fed can raise rates, and massive monetray policy manipulation of market signals had no mal-investment consequences. Well all of that utter crap just got obliterated as China's right-hand-man in the credit-fueled commodity boom bust - Australia - just saw its business capital expenditure collapse 20% YoY - the biggest drop ever, accelerating the crash in business spending to 11 quarters. As Goldman warns, this exposes significant downside risk to any forecast for GDP recovery in 2016.
Recovery? Spin this into recovery!!
As Goldman Sach details,
For consecutive quarters, Australia’s private capex report was weaker than expected across the board – highlighting the risk of an outright contraction in domestic demand in 3Q2015 and a disappointing recovery in growth through 2016. In particular, we note a -9.2%qoq decline in capex in the quarter (BBG consensus: -2.9%qoq), and further sequential deterioration in the FY16 investment intentions component of the report. As it stands, the data speak to an ~-20% contraction in capex in FY16 which – even assuming better capex trends outside of this survey – appears completely at odds with the ~-7% decline in investment forecast by the broader consensus (Consensus Economics). Today’s data highlight that domestic demand likely contracted outright in 3Q2015 and the downside risk to the RBA’s forecast recovery in GDP to a +3.0%yoy pace by end-2016. If growth continues to fall short of expectations as we fear, the prospect of RBA rate cuts remains a very real one.
Private capital expenditure, Septquarter: -9.2% qoq, -20.0% yoy (Bloomberg consensus: -2.9% qoq, GS: -4.0% qoq);
By Component:
- Machinery & equipment (MEI): -8.2% qoq, -12.7%yoy
- Building & structures (B&S): -9.8% qoq, -23.6% yoy
Private capital expenditure,2015-16Intentions (4thestimate): -19.7% (down from -18.8% 3rd estimate)
By industry:
- Mining sector: -30.6% (from -29.1% previously)
- Manufacturing: -9.8% (from -8.8% previously)
- 'Other': -8.5% (from -8.1% previously)
Main Points:
1. Today’s capex report was weaker than expected across the board, with weaker implications for both investment in 3Q2015 and the outlook through FY16 as a whole. Looking specifically at the historical data , the headline -9.2%qoq decline in private capex was a far larger contraction than expected (GS: -4.0%qoq; BBG consensus: -2.9%qoq), with weakness equally spread across the building & structures (-9.8%qoq) and machinery & equipment (-8.2%qoq) components. It is this fall in the latter that has the most relevance for next Wednesday’s 3Q2015 National Accounts and – alongside yesterday’s weak construction data - is a stark reminder that the unwind of Australia’s mining investment boom presents a profound headwind to overall growth.
2. Looking at the investment intentions data, the read-though was also to the weaker side. To be clear, on face value, the “raw” estimate for FY16 spending increased by ~$4.6bn to $120.4bn compared with the third estimate for FY16. There are several important caveats to this apparent improvement however:
- Firstly, compared with the fourth estimate for capex spending for FY15, the raw $120.4 number implies a 20.9% fall.
- Secondly, as there is typically a tendency to initially under-estimate in the survey process and therefore almost always a very strong increase in capex estimates at this point in the survey, it is important to adjust the raw numbers using realization ratios. Using long-run realization ratios, for example, has markedly weaker implications – we note that compared with the third estimate for FY16 (-18.8%), the fourth estimate suggests capex will fall by an even larger -19.7% in FY16. In context, there has now been a sequential deterioration in the FY16 capex outlook over each of the past four estimates, with this deterioration broad-based across the “other selected industries” (-8.5%) and mining sectors (-30.6%).
- Finally, putting the ~20% decline in FY16 capex suggested by today’s data in context, we note that markedly more modest declines in broader business investment are currently baked into the forecasts of consensus (~-7.0%), Treasury (-7%) and ourselves (GS: -11.5%). To be fair, the capex survey does not incorporate trends in public spending in health and education – however, fiscal constraints and relevant leading indicators all suggest that the outlook in these sectors is subdued at best. All things considered, this survey appears completely at odds with the relatively modest contraction in investment many are forecasting. For our part, we remain the most bearish in the market on the investment cycle and see the risks to our own forecast as skewed to the downside (For full details on our relatively cautious views on the investment outlook, please see: Detail - Australia and New Zealand Economic Analyst: Ongoing risks to Australian Investment: A Regional Perspective, 17/8/2015).
3Q2015 GDP estimate:Ahead of next Wednesday’s National Accounts, today’s weaker-than-expected capex numbers require a -20bp reduction in our 3Q2015 GDP tracking estimate to +0.8%qoq. On face value at least, this is still a relatively solid expansion in activity, but today’s update highlights that the headline increase is masking markedly weaker underlying trends. Specifically, with net exports adding ~1.4pts to GDP in the quarter, domestic demand looks on track for an outright contraction.
We will revisit our estimate on receipt of the remaining partial data on Monday (profits & inventories) and Tuesday (trade and public demand) next week.
Monetary Policy:
Reflecting on the implications of the composition of 3Q2015 GDP for monetary policy, we note that such a large (in part weather-related) boost to growth from net exports is likely unsustainable, yet severe headwinds from the mining capex cycle are expected to remain in place for some time. Indeed, on the RBA’s own forecasts, the adjustment in mining capex is only half complete, with ~3% of GDP worth of mining capex to fall out of the growth equation over the coming years. With the tailwinds from the housing construction cycle starting to fade, population growth slowing and public demand constrained by Australia’s public finances – it is hard to find a sustainable offset to the capex headwind elsewhere in the economy. While it is true that LNG export volumes will ramp-up over time, the trend has been towards project delays and the shipments will be delivered into a very weak price environment in any case.
Overall, we remain concerned about the growth outlook in Australia. Notwithstanding, a reported improvement in surveyed business conditions, there is nothing in today’s update to comfort the RBA that this is translating to anything concrete on the investment front. In turn, we see material downside risks to the RBA’s forecast reacceleration in GDP growth to a +3.0%yoy rate by the end of 2016. To the degree growth continues to fall short of the RBA’s expectations, the prospect of further easing will remain on the table.
Charts: Bloomberg
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wow.. Ker-plunk
What happened in the early 90s that is comparable?
we can now legally go find shit on asteroids, and they ain't got it in Oz (FUCK the Outer Space Treaty of 1967)
http://www.planetaryresources.com/2015/11/president-obama-signs-bill-rec...
Weak weak weak weak weak weak... But it's all due to the weather, says Prince "The Twit" Charles, HRM2Bwhenmommiedieswhatanembarassment
#everyprincematters
PS Wouldn't have anything to do with plummeting commodity prices meaning that Oz is closing down facilities as opposed to expanding them now, would it?
Gee we dunno? Maybe cos tehy weren't weighted enough in Bitcoin?
China = Resources = Australia... 90's was a deep recession following: Financial deregulation in the 80's >> foreign investment debt fuelled stock & property boom >> high inflation & short term interest rates over 20%pa >> eventual collapse Oct 1987 & property thereafter repsectively...
Contagion from Black Monday and Savings and Loan Crisis. Go figure why the Aussies took it in the nose from that. This one must be unseasonable snow hitting in their summer... or maybe heat or rabid kangaroos? Otherwise everything is peachy.
Worst recession in Australia since the Great Depression...
https://en.wikipedia.org/wiki/Early_1990s_recession_in_Australia
Part of bigger global sucky period
Is that what they call down under?
just a supply chain interuption, no biggies, who needs iron ore?
recycle those empty cities...
down & under
In December 2007, all the economic indicators in Australia dived. Australia is the canary in the coal mine. I think this latest drop is the regular Aussie economy going into free fall, not just the collapsing mining sector.
James Packer seems oblivious to the downturn but, hopefully, his Macau casino turns out to be an albatross that sinks him and his government backers.
http://www.dailymail.co.uk/news/article-3292529/Swimming-pools-lavish-ar...
Who needs capex when you can fire eveeyone, borrow at 0% and buy back stock?
Better question: Who screwed up and let the truth out?
"Transitory". Drink.
Can you buy that dip?
So... this is bullish for Aussie real estate right ?
IT'S BULLISH FOR EVERYTHING!
Central Bank recovery - banks/corporations/insurers rake the chips, coming and going, backed by the FED and the other Central Banks.
This insanity will get us to WWIII hell or high water, and a whole hella' lot faster.
Hang the Banksters!
"Hang the Banksters!"
Get your real war on baby!
Too much funny money.
Look Bitchez, ISIS---------->
No esploding economies here. These are not the signs of collapse you are looking for.
ISIS, ISIS, baybee, Dum da da da da Dum da.
look on the bright side, falling capex is good news for stabilizing metals prices
less mine expansions is bullish!
Oh, you and your Wild Theories...
The good news is Americans don't give a crap about down under.
if it's any solace? I shorted a small aussie trade earlier today. "tracking f/x".
My two cents, Draghi, disappointed in december.
I'm so tired of feeding the fire of un-learned children.
Tommy Stolper , trolls the commodity trade.
Okay, were dealing with the " rinse wash" scenario.
Who gives a crap about capex.
We have an endless supply of greater fools to keep our dumb bubble inflated.
Aussie land was founded upon ever increasing property values.
Did you know? We are "different". The law of gravity does not apply.
I hear they walk around upside down in Australia and the toilets swirl the wrong way when you flush. At least they do flush. But if your walking upside down how does the toilet even work??? Maybe a beer will help me figure it out.
In Australia, all the shit collects in our heads and exits via the mouth. So upside down toilets really are quite adequate for our daily expulsions.
Glen Stevens is a tool. The RBA is scared shitless. Rates are " on-hold".
Look at Australian bonds. I suggested this scenario last week.
The Australian A$ is going back into the 60's vs $usd, and that is precisely why I bought 6 ounces of 9999.999 Perth Mint bars today.
Yen Cross said:--
Glen Stevens may be a "tool" but -- for a central banker -- he seems like a down-to-earth guy. He lives in the southern suburbs of Sydney -- indeed I spotted him strolling around our local shopping mall last Christmas, sans bodyguards. He must think everyone loves central bankers. Natty dresser (hey, a million dollars per year in salary buys you some good threads; Stevens earns 3 times what Yellen "earns" (at least, earns above the table..not counting "gifts" ...hah hah).
Nice guy...probably kind to his mother. He *does* play guitar in his church choir -- according to Wikipedia.
When Stevens speaks he reminds of me of the reason why Aussies don't open their mouths when they speak, giving them poor elocution: Aussies from a young age learn to speak with their mouths barely open in case the swarms of flies that plague us most years will fly in!!
I live in the coal mining area known as the Hunter Valley in NSW, Australia. Our miners are entitled, over payed, mental midgets whose spending habits shadowed their incomes almost exactly. The more miners that are sacked the more dirt bikes, over powered motor boats and V8 wanker mobiles with seal skin seats and chrome wheels will be going cheap. If it ever translates to banks taking possession of their plastic shit filled houses, maybe prices will get a bit cheaper and I'll snap up a hobby farm with a fucking idiotic motor cross track on it in Mulbring or Mt Vincent. Booger eating morons never think ahead so it's a fair bet. I have compassion for people....just not these people.
The kind of Australian you guys seem to be refering to is known here as a LOBSTER.
Bright red with a body full of muscle.....and a head full of shit.
They are not as thick on the ground as our very own obese FSA though.
V8 muscle cars, iphone 6, drug habit, never worked a day. You know the type.
All those boat people stole their jobs don't you know. sarc/
To be honest with you, I detect a hint of jealousy in your post.
Sorry I took so long to reply.
On the phone to my property manager.
I think what you got a hint of was actually loathing .
And maybe some gloating . Jealousy? Na. Not me.
Not very charitable of me I know, but since I had to endure high school with some of these nepotistic fucktards who only made it into mining because daddy is in the right union, I am not really bothered by that.
Pay backs a bitch huh?
Yeh I have been buy and gold and silver bullion from Perth mint... physical.
A 2 bedroom unit in Panmure,Auckland sold for 555,000. You know something is very wrong.
Have the Aussie insurance campanies taken care of the 2011 Christchurch earthquake damage yet?
Fucking ridiculous!!!!
panumre??? What's the attraction, the railroads and marsh pits? Freeways?
I am a kiwi but lived in NZ, Perth, Sydney , Melbourne, Los Angeles and now east coast US.
My aunt tells me her shit hole in Henderson is worth $550,000.
sELL I have screaaaaaaamed at her. Sure, it may go up still a bit for another year but when the Asians have to start paying the debt back those prices will plunge SO MASSIVeLy.
I can not believe the asking price in Auckland - it floors me!!!
What $200,000 gets you in West Virginia in the good areas is astounding, I live like a king here, mid court modern home, half acre Forrest attached, a guest HOUSE, and I am 2 miles from downtown Charleston, and I live in a good area
The house I grew up in in Te Atatu South as $75k in 1990. Now it's like 750,000. It's not like the neighbors got any better.
I am stunned.
Heading back to Auckland for a visit next year, to see this "vibrant world class leading first rate international city called Auckland", that I know isn't and so does everybody else.
The Asians just want out of China . When other countries have better opportunity and they switch direction, NZ watch out!
fuck and i just loaded up on a gold miner
All papered over.
Nowhere to go but up from here.
Word is that the Aussie Economy is getting ready for a huge export expension. With our Governmenmt now permitting the export of our wellknown DropBears of which we are over run and demand for them is huge we will be rolling in Clover soon. Germany and Sweden are really keen to get them to be put into Refugees Camps in the middle of night to cut back on the numbers there.
Drop bears are nasty.
It's while your watching the trees for them,
that the Eastern brown snake bites you on the balls.
Amazing more people don't come holiday here.
Australias Gartman-esque economics commentator, Stephen Koukoulas, has been singing Australias praises for the last 6 months: house prices that will never fall, mining that will immediately bounce back on the weakness of AUD, interest rates that will rise because things are so great. Hes beginning to look more than stupid.
The only thing he's got right is highlighting that the Liberals have fucked the budget.
Living here in Oz as I do, I get asked to "stop being miserable" when I try to talk to ANYONE about the country's financies. Which is kind of funny because I think its fucking hilarious :)
As most have mentioned in a more than funny way, Australia's "lucky country" vibe may just be shifting. So throw another prawn on the bbq (and a hand full of fat bankers) grab a beer and hold on tighly to your nuts.
The LNG business is going to be a disaster for Au as Russia finishes facilities near Vladivostock - Japan run is short hop and will need few expensive ships to keep up the shuttle
Correction: Australia is not China and no one in Australia has ever said that their mining wasn't in trouble due to the slow down - in fact the mining sector there has reported openly they are downsizing.
This drop in capex is logical and proof that the market is not manipulated and following its cycle as a result of lower demand and lower prices.
This is not to say it is a good thing, but under the international conditions it is expected.
The drop in mining money flowing through the country will first fact Perth which is seeing a grinding halt to real estate and spending (miners are renown for blowing ludicrous amounts of money on girls, alchohol, drugs, food and rent/housing). Then Melbourne and sydney follow.
Keep in mind while Australia likes to tell the world mining is not "that big of a deal on GDP" that this is untrue given the money these companies spent on wages, equipment and services that trickles through and is represented in GDP but NOT as mining.
So yeah, they are in trouble and frankly they were slow to adopt innovation as an economy and are going to pay, severely.
Like New Zealand their magic bullet to GDP growth will be to reverse immigration policy and allow 2% annual growth via rich Asians to prop up their economy.
Sick. Stupid. Short sighted, and with the Asians exploding the property prices (as in New Zealand) regular citizens become second class citizens unable to buy a house and paying rent to foreign investors who suck the money back out, but not before selling their overpriced real estate to citizens who will be left negative mortgages when the bubbles pop.
Stupid. Criminal. Twisted governments, I mean that's what New Zealand gets when they vote a fucking KNOWN BANKER as their prime minister - short sighted near gain for long term EXTREME pain.
Wait for the Aussie to hit .60 all you like.
we were loosing jobs at .58 10yrs ago.
Who are we fucking kidding!!