Australian private sector capital expenditure data for the December quarter comes out at 11:30am (AEDT) today. With affected states reopening from lockdowns during the Delta wave, capex is expected to have rebounded in Q4. Forward-looking investment plans should also remain constructive with the economy re-establishing its pre-lockdown momentum.
The Delta lockdowns in Q3 across much of the nation disrupted the strong upturn in the capex cycle as the economy was rebounding from the 2020 COVID recession. Capex contracted by 2.2% in the quarter to $32.7bn, falling back to pre-pandemic levels.
Weakness in equipment spending largely drove the fall in capex with a 4.1% decline in Q4. The economic recovery, accommodative financing conditions and government tax incentives had seen equipment spending rising at pace over recent quarters. Non-mining sector equipment spending fell by 4.6%q/q, consistent with the contraction in domestic demand (-1.7% in Q3) associated with the lockdowns. The restrictions saw many firms delaying capex spending amid the restrictions on activity, while global supply chain constraints were another headwind, particularly in the acquisition of new vehicles. Buildings and structures capex was soft in Q4 (-0.2%), affected by the temporary shutdown of the construction sector in New South Wales and Victoria.
Mining sector capex lifted by 1.2% in the quarter to $9bn, remaining in its range from the past few years despite commodity prices surging in response to the global economic recovery.
Pointing to an expectation of temporary lockdown-related disruptions, firms increased their expected capex for 2021/22 to $138.6bn, up 8.7% from 3 months earlier and a stronger upgrade than usual for that stage of the estimates cycle. This implied capex was on track to post a 19.7% year-to-year rise. Capex plans in the non-mining sector increased by 10.3% on the previous estimate, while planned spending in the mining sector was upgraded by a more modest 5.1%.
Market expectations | Capital Expenditure
Capex in the December quarter is expected to have risen by 2.5%, with the range of estimates between 0.5% to 4.0%. Also in today's report will be firms' 5th estimate of capex plans for 2021/22 and estimate 1 for 2022/23.
Upgrades from estimates 4 to 5 are generally modest, averaging 1% over the past 10 years. An average result would see estimate 5 for 2021/22 rising to $140bn. However, I think the strength of the previous upgrade (from estimates 3 to 4) signals investment plans are carrying much more momentum than in a 'normal' year, consistent with the economic recovery. For estimate 5, I look for a figure around $145bn. For estimate 1 in 2022/23, a reasonable guide should be around $110bn to $120bn.
Given the fall in Q3, the rebound in capex post lockdown will be important to confirm the resumption of the earlier upswing. The intentions component is also key and will be taken as a guide of the durability of the momentum in business investment beyond the reopening rebound in Q4.
