Recent Data and other Reports we’ve been Reading
by Marc Lerner
The ABS has released new data on capital expenditure in Australia for the March quarter of 2013, which saw an overall fall in capex of 4.7% (seasonally adjusted) during the quarter, which was disappointing relative to expectations of a 0.5% increase. In the mining sector in particular, capex fell by 6.1%, while manufacturing fell marginally by 0.9% to near-decade lows. That is, in terms of actual data so far it doesn’t look like manufacturing is even beginning to close the gap left open by the unwinding of the mining boom. This also follows data from the ABS on construction activity, which also saw a fall of 2.0% in the value of construction work over the March quarter. Despite this, ABS data also released today on firms’ estimates of capex in the future shows that expectations are quite positive, with mining investment looking like a slow plateau over the next year or so rather than a disorderly decline, although manufacturing still isn’t going anywhere. It will be interesting to see if these predictions can become a reality in the context of increasing minerals supply in the face of an unwinding credit bubble in China at some stage over the next few years.
In the last few weeks there have also been some other interesting reports to do with the mining sector as well as the health of the Australian economy more generally. The Bureau of Resources and Energy Economics (BREE) published a paper on resources and energy major projects and how mining investment may taper off over the next few years by outlining various scenarios for project development. BREE’s ‘likely’ scenario sees a fall in the stock of committed investment of $71 billion in the sector in 2014-15.
The international bond fund PIMCO has written a report arguing that as mining investment (which accounted for more than 60% of Australia’s GDP growth in 2012) tapers off, other sectors of the economy are unlikely to be able to fill in the gap – even a boom in housing construction, should it begin, is unlikely to be big enough. PIMCO’s analysis concludes that domestic interest rates are therefore likely to continue trending down to support languishing non-mining business investment. Well-respected Scottish hedge fund manager Hugh Hendry has also mentioned in his latest letter that his fund expects further rate cuts in Australia on the back of a rebalancing in China affecting mining negatively and weak manufacturing activity.