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Thursday, 28 May 2015

The long slow march to zero...

Crapex again

Australia's long slow march to zero interest rates continues, it seems.

Private new capital expenditure declined by 4.4 per cent in the first quarter to be 5.3 per cent lower than one year ago at $35.9 billion.

Mining capex has now fallen from $24.2 billion to $18.9 billion, and investment levels inevitably have a long way to fall yet given the scale of the boom.

The state level data shows how Queensland and Western Australia will bear the brunt of the declines.

Western Australia has held up relatively well to date, with some iron ore investment still washing through the quarterly data.

Mining still accounts for a whopping 84 per cent of capital expenditure in Western Australia on this survey.

However, Queensland is already into a very sharp decline from $12.1 billion of total capital expenditure in Q3 2013 to just $7.9 billion in Q1 2015.

While "other industries" are picking up a small amount of the slack, Queensland's mining and resources regions seem likely to be in for a tough few years ahead.

I've already listed a number of Queensland regions which I expect to endure the worst of the fallout, so there is no need to re-cap on that here.

Expected declines for mining ahead

The most alarming part of this release was not, however, the "actual" expenditure to date, but the "expected".

Total capital expenditure is broadly expected to fall by nearly 25 per cent from $149 billion in 2014-15 to just $104 billion in 2015-16.

The main driver of this is to be another sizeable decline in mining capex, from $78 billion to only $52 billion.

Diagram: Financial year actual and expected expenditure - Mining Capital Expenditure

So much for the forthcoming normalisation of interest rates - markets are already beginning to look for another cut.