Reactions from analysts to today's Australian capex data

In brief ...

JPMorgan:

  • Numbers look pretty bad
  • The estimate for 2015-16 was disappointing. It's around $10 billion less than we were calling for. And it's soft across the board
  • Mining is set to fall further
  • Manufacturing was revised down again. That's not a surprise, but there's not much sign of a revival in other sectors either
  • This lack of animal spirits is not what the RBA has been hoping for. It does add to the chance of a rate cut next week, though we think they will hold on to May
  • The survey was taken before this month's easing and we haven't seen what impact that has had on confidence

ANZ:

  • Outlook for mining investment remains weak as expected
  • Outlook for non-mining is considerably worse than we expected
  • Result suggests that firms remain very gloomy about the outlook and are unwilling to commit to lifting investment spending
  • A softish number was not unexpected today given that business confidence has been trending lower over the past few months and the survey was taken over late January/early February at the height of the speculation over the Prime Ministership, but the magnitude of the decline is surprising
  • The ongoing weakness in the outlook will provide further confirmation to the Bank that the economy needs further stimulus
  • We continue to expect another near term RBA rate cut, most probably at the March meeting

Westpac:

  • Notably the rebound in service sector capex spend continued, up 1.4% in the quarter to be 17.2% higher than a year ago
  • Our forecast for Q4 GDP growth remains 0.6% q/q, 2.5% y/y
  • 2014/15 CAPEX plans little changed - Est 5 was $152.7bn, 8.6% lower than Est 5 for 2013/14 That is little changed from Est 4, which was originally reported as $153bn, 7.5% lower than Est 4 for 2013/14
  • 2015/16 CAPEX plans: weak Est 1 was $109.8bn, 12.4% lower than Est 1 for 2014/15 That is a disappointing result and, on face value, points to downside risks to business investment in the 2015/16 financial year. However, as we have cautioned previously, while Est 1 and Est 2 are timely they can be unreliable
  • No doubt that the mining investment downturn has a long way to run and hence will be a significant headwind to growth in 2015/16
  • Parts of the manufacturing sector are still adjusting to structural change and these numbers point to a further decline in capex
  • The service sector intentions are soft, coming on the back of a lift in investment in 2014/15
  • A very real concern is that the recent sharp pull-back in non-residential building approvals, led lower by the office segment, will see building activity swing from a positive in 2014/15 to a negative in 2015/16
  • Another consideration is heightened uncertainty at present. This uncertainty may mean that the service sectors are less willing, at present, to commit to equipment spending for the 2015/16 year

AMP Capital Investors:

  • Consistent with further rate cuts from the Reserve Bank
  • When you put it together with record low wages growth, low inflation and an Aussie dollar which is still too high, the capex figures just reinforce the case for another interest rate cut
  • I have got one pencilled-in for next week
  • I don't think we should rule out a fall in the cash rates into the ones (per cent)
  • What is lacking in the economy is investment and these figures are still fairly bleak
  • Mining is still declining at a rapid rate, non-mining investments are also declining at a rapid rate and there is a bit of light at the end of the tunnel for the rest of the economy, apart from manufacturing, but it's still not enough to offset the mining decline

CBA:

  • "This is a disappointing set of numbers for those looking for a successful growth transition, very weak mining capex and there's nothing new there, but the non-mining side at first glance looks quite soft
  • It certainly validates those concerns the Reserve Bank has had about that part of the story, it's not coming through as quickly as we'd all like to see
  • This adds to the case for the RBA to step up to the plate again next week and so I think we'll see a 2 per cent cash rate next Tuesday"