Preview: CapEx Q1

Australia's capital expenditure (capex) survey for the March quarter is due for release by the ABS at 11:30am (AEST) today. The survey will include the level of capex made through the first three months of the year as well as estimates of total capex expected to be made over the 2019/20 and 2020/21 financial years. It is this component around expectations that will be of significant interest given the high level of uncertainty over the outlook.  

As it stands | Capital Expenditure

Capex contracted for the fourth straight quarter with a 2.8% fall in Q4 to $28.5bn, accelerating the decline over the year from -1.6% to -5.8% (full review here). The decline in the quarter was centred on a 5.9% pullback in spending on buildings and structures to $14.8bn (-9.6%yr) as equipment, plant and machinery investment lifted by 0.8% to $13.6bn (-1.4%yr). 

On a sector by sector basis, mining investment softened after advances in the previous two quarters falling by 2.7% to $8.2bn (0.9%yr), while non-mining investment posted a fourth straight quarterly contraction with a 2.8% decline to $20.3bn (-8.3%yr). Within the non-mining segment, 'other selected industries' (mainly services) continued its run of weakness with a 1.9% decline to $18.1bn (-8.6%yr) while manufacturing plunged by 10.1% to $2.2bn (-5.4%yr) amid a global downturn in the sector prompted by trade tensions.

The 5th estimate of investment plans for 2019/20 had capex on track to rise modestly by 2.1% compared to a year earlier to $120.3bn. Meanwhile, estimate 1 for investment plans in the 2020/21 financial year was nominated at $100.2bn to up by 8.8% from the same estimate a year ago, albeit with considerable uncertainty attached.

Market expectations | Capital Expenditure

The consensus estimate according to Bloomberg is for capex to decline by a further 2.8% in the March quarter, with estimates ranging between -5.0% to +1.0%. The range of estimates informs us that the risks are to the downside in a quarter that was affected by the summer bushfires and the early stages of the COVID-19 crisis. 

Today's survey will also include the 6th estimate of firms' investment plans for 2019/20 (incorporating 9 months of 'actuals' and a 3-month outlook), though it is the 2nd estimate of capex intentions for the full 2020/21 financial year that is of much more significance in the circumstances. 

What to watch | Capital Expenditure

All the attention will be on the intentions component of the survey for a look through of how firms are adjusting their investment plans in response to COVID-19. Firms' responses for the 2nd estimates for capex in 2020/21 were collated by the ABS during April and May, which was in the midst of the nation's period of lockdown. The severity of the impact on firms was evident in the NAB's Business Surveys for March and April as trading conditions collapsed to their weakest since the 1990s recession and confidence plunged to record lows. In response, capex plans will have clearly been either been scaled back or delayed, particularly in an environment where cash flow is coming under severe strain. The split between investment plans between the mining and non-mining sectors will also be of interest.