Australia’s Capital Expenditure (CapEx) survey for the June quarter disappointed market expectations weighed by late-cycle weakness from the mining sector, while investment from the non-mining sectors endured its softest quarterly result in almost 2-years.
Meanwhile, the latest estimate for planned CapEx in the 2018/19 financial year was around economists forecasts, however, investment is expected to decline over the current financial year.
CapEx — Q2 | By the numbers
- Actual CapEx in Q2 fell -2.5%q/q to $A29.098bn (+0.4%Y/Y), with the median market forecast at +0.6%q/q. In positive news, growth in CapEx from Q1 was upgraded on revision from +0.4%q/q to +1.2%q/q.
- By asset in Q2; CapEx on equipment, plant and machinery (GDP input) fell by -0.9%q/q, while buildings and structures fell -3.9%q/q
- Estimate 3 for CapEx in the 2018/19 Financial Year was upgraded by +16.1% to $A102bn (previous estimate was $A87.88bn). This is still -1.1% on estimate 3 from last year.
CapEx — Q2 | The details
Total CapEx declined by $750m, or -2.5%, in the quarter to $29.098bn. This mostly reflected weakness from the mining sector, where investment fell by $638m (-7.2%q/q), dragged by reduced construction spending (-9.6%q/q) as major LNG projects move further towards completion. There was, however, some offset from equipment spending (+6.7%q/q).
Non-mining sector CapEx was also weak, declining by $113m, or -0.5% in Q2. This was the weakest quarterly result since September 2016, though annual growth is at +5.8%. Breaking this down further;
- Services industries CapEx fell $177m (-1%) on weaker equipment spending (-1.9%), while construction lifted (+2.9%)
- Manufacturing saw a rise of $64m (+2.7%) from stronger investment in equipment (+4.8%) and construction (+0.5%)
Looking ahead to the end of the 2018/19 Financial Year, investment intentions from surveyed firms (Estimate 3) totaled $A102bn, which is 16.1% above their previously estimated figure.
However, at this level, CapEx intentions are 1.1% lower when compared to the same estimate for the 2017/18 Financial Year.
The CapEx outlook is still weighed by falling investment from the mining sector, although the trough is close with major projects under construction in the LNG sector nearing completion. Q2's survey pointed to mining investment falling a further 4.2% (-$1.39bn) in the current financial year.
Non-mining investment was only anticipated to lift by +0.4% ($277m) in 2018/19, with manufacturing +3.1% ($257m) — compared to +6% in estimate 2 — and services flat ($20m) — est 2 was +5%.
CapEx — Q2 | Insights
Today's data was disappointing with CapEx falling in Q2 as well as the decline from equipment, plant and machinery. The outlook for non-mining investment in the current financial year was also softer than the previous survey.
While the CapEx data only accounts for around 60% of private sector business investment — it excludes major industries such as health, education and agriculture — it points to a soft contribution towards that component in next week's Q2 GDP data.
While the CapEx data only accounts for around 60% of private sector business investment — it excludes major industries such as health, education and agriculture — it points to a soft contribution towards that component in next week's Q2 GDP data.
