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Capex spend rises

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It’s looking as though business investment won’t go over a cliff in 2013/14 after all.

Nor did it go over a cliff in the first half of this year either.

And that’s important, because investment matters for economic growth, and economic growth matters for jobs and incomes.

The latest survey from the Australian Bureau of Statistics showed capital expenditure, or capex as economists call it, rose by 4.0 per cent in the June quarter in price-adjusted, seasonally adjusted terms.

That reversed a 4.1 per cent drop in the March quarter, and surprised economists who’d mostly expected a much smaller rise or even a fall.

The figures will probably cause some to lift their forecasts for gross domestic product growth, to be reported in the national accounts for the quarter next Wednesday.

That’s even though the capex in the survey and the capex in the national accounts are different animals.

The survey measures capex when the ownership of the assets changes, while the national accounts measure the value of work as it’s done on those assets.

Still, the figures seem to confirm that capex in the mining sector, which rose most strongly in the quarter, has not plunged into the abyss just yet.

And the projections for 2013/14 included in the survey suggest the abyss might still be a way off.

There’s always a fair bit of wiggle room with the projections, because the gap between projections and final outcomes varies from year to year.

Adjusting for the average gap of the past five years, the projections show a four per cent fall in mining investment (not adjusted for price changes) and a rise of four per cent for the other industries covered by the survey, with a total fall of one per cent.

It looks a little different if the adjustment is based on the past 10 years, with the figures pointing to a 10 per cent rise in mining capex, a nine per cent fall in other industries and a seven per cent rise overall. If just the past year, 2012/13, is taken as a guide, then we’ll get a 14 per cent fall in mining capex, a nine per cent fall elsewhere and a fall of 11 per cent in total.

All of those possibilities are plausible.

Capex is very flukey, especially in the downside – it’s easier to cancel or delay a project than quickly get one up and running, especially at this stage, given that 2013/14 is already two months old.

But the figures showing capex held up better than expected in the June quarter, and is more likely to drift down rather than slump from its recent peak, should help to allay fears that capex is about to head over a cliff.

 

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