Queensland State Accounts show good growth; but it’s slowing

Friday saw the (rather delayed) release of the September quarter Queensland State Accounts from Treasury, and they appear to have slipped under the radar somewhat. While the ABS produce Gross State Product (GSP) data only on an annual basis for the June quarter, the QLD Treasury produce quarterly estimates. We have previously seen some disparity in these two measures, although new revisions to the Treasury data address much of that disparity from the 2015-16 data.

Firstly, if we consider the data for the 2015-16 year. When the original data for the June quarter was released by the Treasury they showed a GSP growth rate of 3.3% over the course of the year. The ABS data, released a few weeks later, had that growth pegged at just 2.0%. We wrote at the time (see here) about the reasons for the discrepancy and suggested that the figure was likely to be closer to 2.6% for the year. We are therefore not at all surprised to see revisions in the Treasury data which have taken the annual figure for 2015-16 down to growth of 2.4% (which is the same rate as national Trend GDP growth for that quarter) .

And so to the latest September quarter (and the first for the 2016-17 financial year). The annual GSP growth rate from the Treasury data has dipped to 1.9% (compared to a national GDP Trend growth rate of 2.6%). On a quarter on quarter basis the Q2 data was revised down to +0.4% (from +1.2%) and Q3 is up 0.5%. Unfortunately the Treasurer’s media release on Friday (see here) said that this 0.5% q/q growth was “substantially stronger than the rest of Australia with only 0.2 per cent“; apparently without realising that the national Q3 data has already been revised by the ABS to show a growth rate of 0.4%.

So what we can certainly see is that the recovery in Queensland is well in place. GSP has now increased for each of the past 8 quarters although, at an average of just over +0.5% q/q over that period, we are clearly a long way from the mining investment fueled boom-times.

Net exports have been, and will continue to be, a huge part of that recovery story. Five years ago net exports were deducting some $35 bn per year from our GSP; today the net export position is in balance over the year (actually a tiny $10 million deficit). Given that annual GSP for Queensland is in the order of $317 bn we can see that a $35 bn swing in net exports has played a huge role.

Household consumption (the largest single component of GSP) continues to move ahead nicely; up 2.8% for the year to Sept 2016. It’s also encouraging to see private investment improving. The annual slide in private CAPEX has slowed to be down just 10.1% (significantly better than the -16.7% ann seen in Dec 2015); the quarterly data has shown increases for the past 2 quarters (although business investment is up only for this quarter it is the first quarterly increase in 4 years) .

Actual CAPEX undershoots, but plans look slightly stronger

Today’s release of private sector actual, and expected, CAPEX shows a somewhat mixed picture. Actual CAPEX for the third quarter was below market expectations at $31.4 bn which is 9.2% below the second quarter number and a full 20.0% below where it was at the same time a year ago. It is the continuing decline in mining CAPEX which is dragging the figures lower; mining investment fell 10.4% in the quarter.

Given the scale of the mining sector in QLD it should come as no surprise that the Sunshine State continues to be heavily impacted by this slowdown. CAPEX in the third quarter fell 15.2% q/q and was down 39.8% for the year in QLD. Mining CAPEX in the country as a whole has fallen 28.8% over the course of the year (in current price terms) while in QLD that decline has been a massive 56.3%.

On the more positive side of the data we see that the fourth estimate for expected CAPEX in 2015-16 was up 4% from the third estimate ($120.4 bn), although this remains 20.9% below the fourth estimate figure from 2014-15.

While we may be seeing a beginning of the end of the CAPEX crash, the fact remains that CAPEX is likely to remain well below previous years’ levels for some time and as a result continue to act as a drag on GDP growth (we shall see Q3 GDP released on Weds Dec 2nd).

151126

Q2 GDP disappoints

After the surprisingly strong first quarter GDP data (see here), today sees the release of some disappointing data for the second quarter. Real GDP was up by just 0.2% for the quarter and 2.0% annually (against expectations of +0.4% and +2.2%).

As we noted yesterday upon the release of the Balance of Payments data, Net Exports were the main drag on growth, deducting 0.6ppts from GDP. Household consumption added just 0.3ppts which was the same as in the last quarter and at a similar level to where it has sat for the past 2 years. The biggest positive for growth was Government consumption which added 0.4ppts (the highest contribution from this sector in almost 7 years) driven largely by increases in defence expenditure.

1509026

The tiny (+0.1%) increase in Queensland State Final Demand reported for the first quarter has now been revised away to a 0.2% decline and the second quarter sees a further 0.8% drop. Over the course of the year Queensland State Final Demand is down 3.3%; its fastest rate of decline since Q3 2009. State Final Demand has now fallen for the past four consecutive quarters.

State Final Demand does not account for the impact of net exports from the state so tends to understate economic growth for a resource exporting state such as Queensland. Nevertheless, the Gross State Product data (produced only annually by the ABS but estimated quarterly by the QLD Treasury) showed declines in the last two quarters of last year and in the first quarter of this year was up by just 0.03%. Today’s data would suggest that the second quarter GSP figures are unlikely to be pretty.

Private sector investment has been the main culprit when it comes to the Queensland slowdown and this most recent data does nothing to change that. Private Investment fell by 5.7% for the quarter and by 19.5% from a year ago. Household consumption was up by 0.6% for the quarter and by 2.8% from the same time a year ago.

1509024

The CONUS Quarterly includes more information on today’s GDP numbers as well as an in-depth look at the Far North Queensland economic picture. It’s available for free download from our Reports page.

Weak CAPEX data, but slightly better than last time

Today’s release of the CAPEX data for the second quarter shows private capital expenditure still falling (down 4.0% from the previous quarter and down 10.5% from this time last year) but at a marginally slower rate than in Q1.

The main point of interest in the data however is the expected CAPEX  figures. For the 7th (and final) estimate for the 2014-15 year we see expected investment at $150.6bn which is a 4.7% decline from the same estimate in 2013-14 but 0.5% better than the 6th estimate. Looking into the future the 3rd estimate for 2015-16 ($114.8bn) is 23.4% lower than the 3rd estimate for 2014-15 but 9.9% higher than the 2nd estimate. It will surprise no one to note that the mining sector is the main reason for the sharp falls in both years.

In QLD we see actual CAPEX in Q2 down 4.7% from Q1 and down 30.7% from the same time a year ago (i.e. significantly worse than at a national level…which is not surprise given the dominance of mining in the QLD economy). In Q2 (as measure in current prices) mining CAPEX in QLD fell 51.6% from a year ago while the comparable decline at a national level was just 23.7%. As we noted last quarter (see here) QLD is suffering disproportionately from the slowdown in mining investment.

150827

GDP surprises on the upside. QLD returns to growth

The first quarter GDP data released this morning has surprised the market coming in at +0.9% (exp +0.7%) for an annual rate of +2.3% (exp +2.1%). As a result the A$ took a short rally higher; although that now appears to have rather run out of steam.

Stronger growth came from net exports (adding 0.7 ppts) and household consumption (added 0.3 ppts). Despite household consumption growth remaining fairly lack-lustre (+0.5% q/q for a +2.5% rate for the year) the fact that it continue to outstrip both GDP and disposable income growth is reflected in yet another fall in the household saving rate (down to 8.3% from 8.8%). Although by historical standards this is still a high rate of saving, it is the lowest we have seen since the GFC-induced paradigm shift for households in ’08-’09.

150603

1506033

In Queensland we saw State Final Demand grow, albeit by just 0.1%, for the first time in three quarters. here too it was the household that led the growth with household consumption up 0.9% q/q. Private CAPEX fell sharply (-4.1% q/q) while the much smaller component of Public CAPEX saw a 6.9% spike up. This growth in SFD is more than likely to mean that Gross State Product for Q1 (once the numbers are crunched by QLD Treasury) should return to positive territory after the two negative quarters (which has been much discussed in recent days…see our commentary here).

However, it is also more than likely that the QLD Budget in July will need to revise down growth forecasts for 2014-15 from the previous +3%.

This quarter’s CONUS Quarterly includes more details on today’s GDP numbers as well as an in-depth analysis of the state of the economy in FNQ. It’s available for download here…Conus Quarterly Jun 2015

1506032

CAPEX falls further as QLD gets smashed by the mining investment slowdown

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 2012-13.150528

CAPEX disappoints and the mining slowdown hits QLD hard

Private Capital Expenditure (CAPEX) data from the ABS for the fourth quarter disappointed the market with a 2.2% decline on the quarter (against an expected 1.6% decline). This comes after an upward revision to the Q3 data saw a 0.2% increased upgraded to a 0.6% increase (see our post on Q3 data here). Actual CAPEX in Q4 was 3.6% below it’s level in Q4 last year. Total CAPEX for the year to date in the first 2 quarters on 2014-15 is 3.2% below the level seen at this stage last year. Budget projections of a decline of around 5.5% in CAPEX for the full 2014-15 financial year would still appear to be broadly realistic.

However, the results for QLD are much worse. Here we see actual CAPEX for the quarter down 8.5% for a decline of 24.6% from Q4 last year. 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 fell 38% in Q4 from the same period last year in QLD while it was down 14.9% at a national level. The mining CAPEX slowdown is having a severe impact in QLD. Gene Tunny at Queensland Economy Watch posted an interesting piece with the same message yesterday following the Construction Work Done data.

The 5th (of 7) estimates of expected total CAPEX for the 2014-15 year show a 8.6% decline from the 5th estimate last year and a 0.4% increase from the 4th estimate this year (although estimate 4 was revised slightly lower). The 1st estimate for 2015-16 sees a 12.4% decline from the 1st estimate this year. 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, but it also highlights the fact that we have not yet seen the kind of “CAPEX cliff” that some commentators have been talking about. As mining CAPEX has fallen increases in other industries have taken up at least some of the slack and the total CAPEX slowdown has been far more gradual that many were expecting. Also worth noting that despite the declines already seen CAPEX remains significantly above the levels seen in 2010-11.

150226

CAPEX is a pleasant surprise…except for QLD

The private capital expenditure data released this morning has been a pleasant surprise for the markets. Third quarter actual CAPEX had been expected to come in around a 1.5% decline; in actual fact the result was a modest 0.2% increase. The crucial Plant, Equipment and Machinery component, which will feed into next week’s release of the Q3 GDP number, rose a healthy 4.4% for the quarter (against expectations of a 1.0% decline….expect to see GDP forecasts being revised up in the days to come!). Of course, CAPEX is still falling as the mining investment boom unwinds, therefore the Q3 CAPEX total is down 5.9% from the same period a year ago; although Plant, Equipment and Machinery figure only shows a 1.4% decline for the year. As we have been saying for some time, the “mining investment cliff” is nowhere near as bad as the doom-sayers have been anticipating, and there is some evidence of other sectors “taking up the slack”.

Unfortunately the same positivity cannot be brought to the data for QLD. The Q3 CAPEX total for the state shows a decline of 6.5% for the quarter and now sits 18.5% below the level of a year ago. The Plant, Equipment and Machinery sector has posted a solid 6.5% increase for the quarter, although this still represents a 4.8% decline over the year (and this should help to support State Product data next week). The big falls in QLD have come from the Building and Structures sector where the quarter saw a 11.2% fall, and a huge 23.3% decline over the year. Mining investment data will be spread between these two components. The ABS produce seasonally adjusted data in volume terms for mining investment across the nation (down 3.5% in the quarter) but at the State level we only have industry based data on a current price basis; so the two are not directly comparable. Nevertheless the current price data for QLD shows mining investment fell by 15,4%. Clearly the mining investment slowdown in QLD is far more dramatic than across the nation as a whole.

The ABS release also provides data on expected investment in the 2014-15 financial year. This release sees the 4th (out of 7) estimates for the year at $153.2 bn, a rise of 2.2% from the 3rd estimate and a decline of 7.5% from the 4th estimate last year. $153.2 bn is actually only a 3% decline from the final number for the full 2013-14 financial year, although as the graph below makes clear, the final results historically tend to be somewhat below the forecast levels of the 4th estimate. The Federal budget has been based on a decline in CAPEX of about 5.5% and, at this stage, that doesn’t appear to be too far off the likely outcome.

TOTAL CAPITAL EXPENDITURE

Chart: Financial year actual and expected expenditure- Total Capital Expenditure

CAPEX better than expected

Private Capital Expenditure (CAPEX) for the second quarter was up 1.1% on a seasonally adjusted basis from the previous quarter. This result was significantly better than the market expectation of a fall of about 1%. CAPEX fell 4% from the same quarter a year ago. In Queensland CAPEX fell 2.1% for the quarter and 8.9% over the year; the greater declines in Queensland are not surprising given the State’s reliance on mining (which is the greatest source of the CAPEX declines nationally).

When considering the less volatile Trend series see we national CAPEX down 1.7% q/q for a 5.0% decline over the year. In Queensland the Trend series shows a 4.5% fall for a 11.1% decline over the year.

Investment into Equipment, Plant and Machinery, which will feed directly into next week’s GDP release for Q2,  fell 0.9% q/q reinforcing the feeling that Q2 GDP could well be weak.

The CAPEX data does not only focus on actual expenditure over the past quarter but also provides us with data on the total for the 2013-14 financial year and expectations for CAPEX in the coming year. The 7th (and final) estimate for the full 2013-14 year came in at $158bn which is down 1.7% from 2012-13 and a 3.2% fall from the 6th estimate (and also slightly below our own estimate of $160bn made last quarter…see here for previous commentary). Expectations for the 2014-15 financial year  (3rd estimate) were 5.1% higher than the 2nd estimate at $145bn; this was at the higher end of market expectations and is some evidence that there is the much-awaited shift from mining to non-mining investment starting to happen.

As we have said in the past; talk of a “CAPEX cliff” appear unwarranted, although a clear and steady decline in mining investment continues to weigh on investment and in turn therefore GDP, growth .

Chart: Financial year actual and expected expenditure- Total Capital Expenditure