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Thursday, 23 February 2017

Declining mining CapEx still hurting WA

CapEx still weak

Total private new capital expenditure declined by another 2.1 per cent in seasonally adjusted terms in the December quarter to $27.6 billion. 

Capex has declined by 15.5 per cent over the year following slight revisions to the prior quarter. 



Mining investment continues to plunge, now down to $9.4 billion from a quarterly peak of $24.3 billion in the second quarter of 2012, with yet further drops expected. 

There have been some moderate improvements in manufacturing and services capital expenditure respectively, although to date these have been relative chicken feed compared to the smashing falls in the mining sector. 



The decline in mining capex continues to hurt Western Australia, where total quarterly capital expenditure has fallen from $15.8 billion in the December quarter in the heady days of four years ago to just $7.2 billion, with further declines in the post. 


Despite the gloom in Western Australia, nationally the decline is now in all likelihood far closer to the end than to the beginning.

In fact, in other states capital expenditure is generally tracking reasonably well, if not swimmingly. 

The first estimate for total capital expenditure - which historically has always come in low - was an uninspiring $80.6 billion for 2017-18, which was a disappointing 3.9 per cent below the corresponding prior year estimate. 

This was a clear-cut miss against market expectations.

Notably the first estimate for "other industries" - essentially services  industries- was 8.3 per cent higher than in the prior year at $46.8 billion. 

However, the first estimate for mining capex remained a painful 20 per cent lower year-on-year, which really is another huge decline given what has already gone before! 

The wrap

There is some grounds for optimism here given that services investment is now steadily increasing. 

Despite this, mining capital expenditure still has some way to decline, particularly in Western Australian and the Northern Territory. 

How you experience 2017 and 2018 will largely depend on whether or not you live in Western Australia or in a resources region. 

The services industries, at least in the most populous capital cities, look set for a mainly positive year ahead. 

Gold-Construction, Australia