RBA warns on Capex forecasts

In the September bulletin, the RBA included an article on the use and abuse of the ABS’s Capex intentions survey.

The industry standard is to adjust respondent answers using average ratios between work done and work expected to be done n-periods ahead. The RBA found that this approach tends to over-predict capex.

If used on their own, the Capex expectations data have tended to overpredict the upswing in mining investment over the past two years, with the realisation ratios for both 2010/11 and 2011/12 at the low end of historical experience.

Now this is surely already in RBA forecasts, and so does not signal a change of thinking for the Bank – however it is a reminder to be careful in extrapolating from ‘large’ ABS Capex intentions survey results.