The ABS is due to publish its September quarter update on Australian private sector capital expenditure today at 11:30am (AEDT). The emergence of the Covid-19 pandemic and related uncertainty saw firms respond by cutting back investment spending and forward-looking plans as the focus turned to maintaining liquidity during the initial phase of the crisis. Uncertainty around the economic outlook is elevated, but the recent Federal Budget contained measures to drive investment spending in the near term.
As it stands | Capital ExpenditureThe decline in Capex in Q2 was accelerated at -5.9% as firms reduced investment spending to preserve liquidity as the shutdown measures were introduced. This followed a period in which capex had fallen in each of the previous 5 quarters, lowering the level to its weakest since Q3 2007 at $26.1bn (-11.5%yr). Spending on equipment, plant and machinery contracted by 7.6% to $12.1bn (-13.8%yr) and buildings and structures investment weakened by 4.4% to $14.0bn (-9.4%yr).
Across the sectors, non-mining investment fell by 8.0% in Q2 — its 6th straight quarterly decline — to $17.7bn (-17.3%yr). Within this, services industries contracted by 8.4% to $15.5bn and manufacturing weakned by 4.5% to $2.2bn (-7.0%yr). After lifting by 4.4% in the March quarter, mining capex eased by 1.2% in Q2 to $8.4bn (3.9%yr), but the sector posted its first year to year rise in investment spending in 7 years.
Firms' 3rd estimate of total capex plans for 2020/21 was nominated at $98.6bn, which on a like for like basis with 2019/20 pointed to a fall in investment spending of 12.6% over the year. The impact, though, was uneven with the non-mining sector taking the full brunt (-19.4% year to year) as investment in the mining sector was projected to hold steady (0.6% year to year). A full review of Q2's report is available here.
Market expectations | Capital Expenditure
For today's report, the median estimate is for capex to have contracted by a further 1.5% in the September quarter, with the range of estimates between -6.0% to 1.7%. On the invetment intentions component, no median estimate is put forward but there may be some revision to the upside for the 4th estimate of plans for 2020/21 with significant progress being made in containing the pandemic, a less pessimistic economic outlook than earlier feared and given the incentives in the recent Federal Budget around the expansion to instant asset write-offs.
For today's report, the median estimate is for capex to have contracted by a further 1.5% in the September quarter, with the range of estimates between -6.0% to 1.7%. On the invetment intentions component, no median estimate is put forward but there may be some revision to the upside for the 4th estimate of plans for 2020/21 with significant progress being made in containing the pandemic, a less pessimistic economic outlook than earlier feared and given the incentives in the recent Federal Budget around the expansion to instant asset write-offs.
What to watch | Capital Expenditure
The capex intentions component is where most of the interest in today's report will be focused on. In last week's ABS Business Impacts of Covid-19 Survey, there were some signs that the incentives in the Federal Budget were having a positive influence on firms' near-term capex plans, though concerns around economic outlook and uncertainty over the demand profile for their goods and services were higher-order considerations.
