Aus business investment outlook rebounds - ABS
(1 March 2019 - Australia) Australian business capital expenditure (capex) lifted in Q4 2018 and posted the strongest uptick in forecast business investment in almost five years the latest Australian Bureau of Statistics (ABS) data shows.
Private sector capex increased by two percent to A$30.1 billion in Q4 2018 (seasonally adjusted) following consecutive quarterly declines through 2018, exceeding expectations. The result was underpinned by resurgent plant and equipment (P&E) growth, increasing again by almost one percent to A$14 billion and representing an eight percent lift year-on-year. Capex rose by 1.9 percent, driven by strong investment in plant and equipment. The data confirms that although mining investment continues to trend lower from its mining boom peak, investment spending is predicted to lift by Q1 2020 to A$30.2 billion. Importantly ABS private capex data captures up to two thirds of total business investment with exception to some services sectors such as education and health along with selected technology investment and farming.
By sector, services (other selected industries) displayed the strongest intentions for purchasing new or replacement P&E, rising six percent to A$19.8 billion for a year-on-year expansion of nine percent. With outright business credit demand lifting to 5.2 percent year-on-year according to separate RBA credit aggregate demand data, businesses are displaying clear intention to invest for growth. Business credit rose by A$3.1 billion to A$956 billion, marking a monthly increase of 0.3 percent. Reserve Bank of Australia (RBA) credit aggregates measure credit provided by financial institutions operating domestically but do not capture cross-border or non-intermediated lending. In contrast retail confidence is softening with consumers borrowing and spending less while corporates are hiring more staff and planning to invest for growth, placing pressure on RBA policy makers to act. RBA Governor Philip Lowe is not expected to change rates at 2:30pm on the first Tuesday of the month this week, maintaining a record long ‘no change’ stretch since cutting the official overnight cash rate to 1.5 percent in August 2016. The RBA has not increased rates since November 2010.
The International Monetary Fund (IMF) has recommended the Australian Prudential Regulatory Authority (APRA) conducts a forensic analysis of the credit risk management frameworks of Australian banks as part of its Financial Sector Assessment Program (FSAP) report on Australia. While the comprehensive review was generally positive towards the domestic economy and the role of the prudential regulator, it did warn of key risks to the financial system, noting stretched property valuations and high household debt in particular pose key macro-prudential risks to Australia. “House prices, after rising by about 70 percent over the past decade at the national level, have now started to decline” the report said.
The resurgent capex figures are supported by East & Partners latest Equipment Finance research, with 1,294 CFOs and corporate treasurers upwardly revising last year’s buoyant asset financing volume change forecast of 7.8 percent along with equipment finance representing a record high proportion of total business borrowings underpinned by small businesses.
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