Another day, another set of statistics pointing to a dismal economic scorecard for the federal government.
Yet, tucked away behind the headline figures, there’s hope that Australia can continue to avoid an outright recession.
The Australian Bureau of Statistics’ private capital expenditure survey shows capex fell another half a per cent in the June quarter from the March period, taking the loss for the year to one per cent.
Along with earlier weak construction figures and poor consumption, the capex numbers point to a miserable GDP number next week – probably the worst since 1992.
But there’s an important difference about the ABS capex survey; it doesn’t just look backwards, but also tries to predict the future.
The ABS effectively asks a sample of the nation’s chief financial officers two key questions:
- What was your capex in the latest quarter?
- And what do you expect it to be in the next financial year?
It’s the second, forward-looking question that holds some promise.
It seems to be the nature of CFOs to be miserable souls.
Typically, when first asked what capex they’ll allow next year, they grumble something like “Not as much as this year, if I can help it”.
So while the CFOs report they spent $122.1 billion on capex in the year to June 30, they estimate they’ll only spend $113.4 billion this financial year.
That looks bad for the economy – even less urgently needed investment in our future – but you have to discount that estimate for the innate pessimism of CFOs.
As the year progresses, the rest of the executive team generally finds ways to winkle more money out of the tight-fisted CFO, or things break and have to be replaced. Thus the eventual spend tends to be substantially higher than the early estimates.
Which is why the important thing about the latest estimate for 2019-20 isn’t how it compares with what was spent in 2018-19, but how it compares with what the CEOs were guessing this time last year.
And the good news is that the latest estimate, the third time the ABS has asked the CFOs about 2019-20, is 10.7 per cent higher than the third estimate last year.
What’s more, it’s nearly 15 per cent higher than what the CFOs were prepared to spend three months earlier.
If the usual pattern holds – crazy Donald Trump permitting – it means we will end with stronger capex this year, the first half-reasonable growth in five years, maybe crawling back to what it was in 2015-16, though still well below the 2014-15 figure.
There’s many a slip betwixt cup and lip of course, but the areas promising extra investment look fairly solid, led by mining.
After years of winding down from the resources construction boom, the miners are investing strongly again.
The third estimate for mining capex this year is a welcome $38 billion, about $5 billion more than they spent in 2018-19, 21 per cent more than the same estimate last year and 17 per cent higher than three months earlier.
By the nature of mining, there’s a lot of work that goes into a project before the CFO ticks the box, meaning the estimates tend to be more accurate.
Also promising is the pickup in “equipment, plant and machinery” investment – 8 per cent higher than this time last year and 18 per cent up on the previous quarter.
The ABS capex survey is far from perfect – it fails to count many important industries – but the forecast element of this survey makes it one of the most important for trying to work out what happens next.
Combine the lift in capex with the public infrastructure investment that’s still growing and there’s good reason to think our economy will keep expanding this year, despite the continuing “retail recession” and weak household consumption flowing from sub-standard wages growth.
It’s likely to be growth most people won’t really feel – like last year – but it’s much, much better than going backwards.
Now, if only the Morrison/Frydenberg government took the Reserve Bank’s advice and genuinely tried to promote growth, instead of relying on interest rates …