Today’s release of Capital Expenditure (CAPEX) data for the first quarter of 2015 has come in weaker than expected as buildings and structures investment fell faster than forecast. The seasonally adjusted chain volume measure shows CAPEX was down 4.4% in Q1 from the previous quarter and fell 5.3% from a year ago. The market had been expecting a quarterly decline of half that. However, on the slightly brighter side, the estimate for Q4 was revised slightly higher and now shows a fall of just 1.7% q/q against the original figure of a 2.2% drop.
Taken as a whole the numbers are nothing but poor; the A$ fell by more than half a US cent on the release.
For the three quarters of the financial year to date we see total CAPEX having fallen 4.5% from the same time a year ago. This suggests that the Budget projections of a 5.5% decline over the course of the 2014-15 year may be slightly understating the scale of the decline which could come in above 6%.
In Queensland the mining sector slowdown has had an even more dramatic impact. Here total CAPEX for the quarter fell 14.9% (-29.8% from a year ago) while the previous Q4 decline was revised down to 8.9% (from 8.5%). .The ABS provide industry breakdowns at State level only on a Current Price basis which we cannot directly compare to the Chain Volume measures quoted above, however when comparing like with like we see mining CAPEX in QLD fell 44.6% in Q1 from the same period last year while it was down 12.7% at a national level. The mining CAPEX slowdown is having a much more severe impact in QLD than nationally and will make the new Treasurer’s job of putting together his first Budget harder still. The Treasury forecast (from last year’s Budget) calls for a 20% decline in business investment in the 2014-15 year; it looks as if this forecast could be highly optimistic and will almost certainly result in a significant downward revision of the 3% Gross State Product growth forecast (as suggested in our post on the “recession” story earlier this week).
The 6th (of 7) estimates of expected total CAPEX for the 2014-15 year show a 8.1% decline from the 6th estimate last year and a 0.6% decrease from the 5th estimate this year. The 2nd estimate for 2015-16 sees a 24.6% decline from the 2nd estimate this year. The 2nd estimate is however 1.4% higher than the 1st estimate. In all cases the primary sector responsible for the declines is mining. The graph below makes clear the slowdown in CAPEX we have been seeing over the past few years. The numbers for expected CAPEX in 2015-16 are now very closely matched to those we saw in 2010-11 and are almost 40% below the peaks seen in 2012-13.