The decline in business investment suggests a slowdown in GDP, but the outlook is better

published

November 29, 2018 16:42:39

Based on the evidence available to date, the Australian economy appears to have slowed in the September quarter, with capital and construction data disappointing before the national accounts of the United States. next week.

Expenditures in capital expenditures decreased by 0.5% during the quarter, while the market forecast a sharp increase of 1%.

The Australian Bureau of Australian Statistics' "completed construction data" was also much weaker than expected, down almost 3% in the quarter from the 1% rise that most economists had taken into account. in their spreadsheets.

Both sets of data are important – or partial – building blocks for the composition of GDP growth in next week's national accounts publication.

However, the figures may not be so dark as the first glance suggests.

First, investment data for the second quarter have been revised upward, although they are still down 0.9%.

A sharp 2.8% drop in spending on buildings and structures is largely responsible for the "moderate" result of capital spending, which is not surprising after data on construction.

However, there was more positive news elsewhere.

Equipment, plant and machinery expenses increased by more than 2% during the quarter.

Investment in the manufacturing sector increased 2.7% in the quarter, while miners tightened their pockets. Expenses decreased by 2.7%.

Stronger spending plans

Importantly, investment intentions were stronger than expected.

Businesses revised their spending estimates for fiscal 2018-2019 up to $ 114 billion from a previous estimate of $ 102 billion.

This is the largest increase in investment intentions for nearly two decades.

Sarah Hunter, chief economist at BIS Oxford Economics, said that although the overall figure was disappointing, a closer look revealed that it was not so bad.

"The mining sector was responsible for the decline in total expenditures, LNG projects were completed, but plant and equipment expenditures increased 7.4% in the quarter, leaving think that seeks to replace depleted capital and increase production, "said Ms. Hunter.

"The survey data confirms the indicators of business confidence indicators – companies remain optimistic about prospects, encounter increasing capacity constraints and plan to invest to develop their capacity.

"We continue to believe that non-mining investment will drive growth over the next two years."

"Negative risk" for GDP

UBS economist, George Tharenou, said that if the "intentions" survey improved the outlook, the historical data posed a "negative" risk to GDP forecasts.

"Overall, third quarter investment spending has unexpectedly fallen, after construction and retail sales weaker than expected," said Tharenou.

"With regard to real GDP, there is still significant uncertainty about stocks, trade, public consumption and overall consumption, all of which should be settled next week."

For the moment, Tharenou is maintaining his GDP growth forecast of 0.6% for the quarter and 3.3% for the last 12 months.

"Higher-than-expected private and public investment, as well as stronger than expected fiscal stimulus, could pose an upside risk to our outlook, but we continue to see a downside risk to the consumption of tightening. credit and housing degradation, "he said.

Topics:

business-economics-and-finance

building and construction,

manufacturing,

mining industry,

Australia