Mining Sector Sentiment Turns Positive Pushing Western Australia Forward
A rebound in sentiment in the mining services sector has sparked a significant increase in the asset acquisition intentions of businesses in Western Australia and Queensland. The result for Western Australia increased from 14.0 per cent of businesses in the March 2017 quarter to 25.9 per cent this quarter, while the figure for Queensland almost doubled from 16.5 to 31.4 per cent. However, this was before the devastation caused by Cyclone Debbie, the impact of which will inevitably be seen in Queensland’s results in the next round of the Index.
These are just some of the findings from the latest round of the Equipment Demand Index (the Index), which also revealed that nearly one third of businesses nationally (30.6 per cent) plan to increase their asset base during the June quarter compared to 25.6 per cent from the previous Index.
Further analysis of state based data shows that businesses in South Australia and the Northern Territory were the least positive, with a below average 23.2 per cent planning asset acquisitions, suggesting that the energy crisis in South Australia may have played a role in dulling sentiment.
Of other states, businesses in New South Wales and the Australian Capital Territory continue to deliver the most positive response, with 33.8 per cent planning an increase in assets. With economic growth in New South Wales at 3.5 per cent this appears to have had a positive effect on businesses in the state and has been a significant contributor to driving national growth which currently stands at 2.4 per cent.
In Victoria and Tasmania, a lower 29.4 per cent of businesses are forecasting acquisitions, down from 31.3 percent in the previous round. This comes as a surprise given Victoria’s rising population is expected to increase, which, will see demand for infrastructure and services across all sectors rise.
“Western Australia snapped five quarters of negative growth in the first quarter of this year, and the state’s economy grew 0.4 per cent according to the ABS,” said Daniel Blizzard, chief executive of Alleasing.
According to the Australian Bureau of Statistics (ABS), Australian businesses are forecast to spend around $52 billion on plant and equipment in the 2017 financial year. Index data suggests there is a clear bias towards outright purchase of this equipment, with respondents reporting that an average of just 25.0 per cent of their current asset base is leased or otherwise financed. These figures suggest that of the assets acquired this financial year, $40 billion, or around 2.5% of GDP, will be purchased outright, while $12 billion will be financed.
Further highlighting the bias towards outright ownership of assets, four in ten respondents use their own equity to fund asset purchases. The figure was higher for smaller businesses, at 45.0 per cent for SMEs and 37.0 per cent for upper corporates.
“Not all of the AUD$40 billion businesses will spend on buying assets this year could be financed, but if a portion of these funds were freed up for growth via the use of alternative capital, we could see a significant impact on individual businesses and the broader economy,” said Mr Blizzard.
Download your copy of the latest Alleasing Equipment Demand Index.
NB. The research and publication of the Equipment Demand Index were conducted under Maia Financial’s previous name, Alleasing.