Research Team at ANZ, suggests that today’s report provided the first estimate for Australian firms’ 2016-17 capital expenditure intentions, which disappointed ANZ and market expectations. Key Quotes “The outlook for non-mining investment remains weak, while mining investment is expected to contract sharply. • After adjusting for the typical bias in firms’ investment intentions, the survey suggests that non-mining investment is likely to decline by around 6% y/y over 2016-17 in year-average terms. However, we would note that there is a high degree of uncertainty around firms’ first estimates and as such they need to be interpreted in broad terms. In addition, this survey was conducted during a period of significant market volatility, which may have weighed on firms’ investment outlook. • While this is a disappointing outcome, we would note that the RBA has been less concerned by weak non-mining business investment in recent times, as economic activity has been increasingly concentrated in labour-intensive sectors, which are less capital intensive. Indeed, conditions in the labour market strengthened considerably over the course of 2015 despite the ongoing weakness in non-mining business investment. • Meanwhile, mining investment is projected to decline 27% y/y over 2016-17 in year average terms, which is broadly consistent with our current forecasts. The ongoing decline in mining investment is largely a result of large-scale LNG projects nearing completion. Overall, these data suggest that business investment is likely to remain a considerable drag on GDP growth moving forward. • Investment intentions for 2015-16 were little changed from the previous estimate, with non-mining and mining capital expenditure expected to decline 7% y/y and 31% y/y respectively. • Real capital expenditure (CAPEX) posted a surprise increase in Q4, rising 0.8% q/q. The pick-up was driven by the buildings and structures component, which is in stark contrast to yesterday’s construction work done (CWD) data that showed a sharp decline in private engineering construction activity. This anomaly likely reflects the different treatment of the payment and installation of large LNG modules in the CWD and CAPEX surveys. Overall, for next week’s Q4 GDP data, we expect that engineering construction will likely decline, but not to the extent implied by the CWD release. • Meanwhile, the machinery and equipment component, which feeds directly into GDP, experienced a small decline in the quarter (Figure 4). We will be releasing a full preview of Q4 GDP in the coming days. Non-mining investment intentions remain in the doldrums with firms’ first estimate for 2016-17 signalling a 6% y/y decline in year-average terms. While the RBA appears less fazed by the soft business investment outlook due to the stronger jobs market, these data highlight the challenges around the investment outlook. Mining investment intentions remained downbeat, with a further sharp decline anticipated over 2016-17. Real capital expenditure (CAPEX) posted a surprise increase in Q4. For more information, read our latest forex news.