Research Team at ANZ, suggests that Thursday’s CAPEX survey will provide an important update on the outlook for business investment. Key Quotes “The survey will furnish us with the first look at firms’ investment plans for 2016-17, the fifth estimate for 2015-16, and actual CAPEX spending for Q4 2015. The focus of this week’s survey will be on firms’ first estimate of nonmining investment intentions for 2016-17. Despite a sustained run of above-average business conditions, solid balance sheets, and low borrowing costs, non-mining investment has remained sluggish. In part, the ongoing weakness in non-mining business investment likely reflects that much of the improvement in the non-mining parts of the economy has occurred in the services sector, which is less capital intensive. While we are expecting some modest improvement in firms’ non-mining investment intentions for 2016-17. We would note that this survey was taken over January and February, which was a period of heightened financial market volatility. We have pencilled in a raw non-mining estimate of AUD51bn for 2016-17, which would point to year-average growth just shy of 2% y/y. This would be in line with our view that a slow but steady pickup in consumer demand will eventually support investment spending. A raw estimate above AUD53bn (+5.7% y/y) would be considered a positive result. This would perhaps suggest an element of payback from the current weakness in investment spending, and provide some well-overdue offset to the ongoing decline in mining-related investment. On the other hand, a raw non-mining estimate of below AUD49bn would be a particularly weak number. This would imply a second successive year of falling non-mining investment. We expect the fifth estimate for non-mining investment in 2015-16 to show a raw value of AUD66bn. This would imply an 8.3% decline in year average terms – in line with the previous CAPEX survey. For mining, we are expecting a raw estimate for 2016-17 of AUD38bn, which would signal an 18% decline in year-average terms. The ongoing weakness in mining investment has been well signposted with a number of multi-billion dollar LNG and iron ore projects reaching completion. At the same time, the collapse in commodity prices has meant that the prospect of new projects advancing to the construction stage is highly unlikely to occur. Overall, raw numbers around AUD122bn for 2015-16 and AUD89bn for 2016-17 would be broadly consistent with our forecasts. This would be consistent with our view of ongoing declines in the mining sector and a persistent softness in the non-mining industries. In terms of the implications of this soft outlook for non-mining investment, we would note that the RBA has been less concerned by weak business investment recently, as economic growth is increasingly concentrated in the labour-intensive sectors, which are less capital intensive. Meanwhile, we expect actual real CAPEX to have fallen 2.2% q/q in Q4 – the fifth consecutive quarterly decline. This is likely to have been driven by buildings and structures spending, as mining-related engineering construction continues to fall.” For more information, read our latest forex news.