Australia: Softer Q2 Capex outcome – TD Securities

Analysts at TD Securities note that Australia’s Capex for Q2 fell 0.5% q/q in line with their expectations and falling under market expectations of +0.4%.

Key Quotes

“The main driver for the softer Q2 outcome was the 3.3% drop in Building & structures. This is not a complete surprise following yesterday's weak Construction data and the sensitivity around property running into the election. That said the part that feeds into GDP- Plant and machinery was up 2.5%/q and is positive for GDP.”

“Forward looking capex intentions though were positive - capex in 2018/19 was A$122.1b, up 2.3% on 2017/18 capex. The 3rd estimate of 2019/20 capex was A$113.4b, up 10% on the 3rd estimate of 2018/19. After adjusting with realisation ratios, 2019/20 capex is expected to be 3% higher than 2018/19 capex.”

“In terms of expected increases in capex for 2019/20 over 2018/19, mining capex is expected to rise nearly 9%, manufacturing +5% but services is expected to grow only +0.3% (1st est 2.2% and 2nd est 1.9%, which is disappointing considering the RBA has pinned hopes on non-mining capex driving the recovery.”