Australia's capital expenditure survey for the September quarter is scheduled for 11:30am (AEDT) today. Capex is expected to rise modestly following a soft first half of the year. Forward-looking capex plans are likely to remain upbeat despite headwinds to the global and domestic economic outlook intensifying.
The capex cycle was in an upswing coming out of the pandemic but has lost momentum in recent quarters. In Q2, capex declined by -0.3%, slowing growth through the year to 2%. Equipment investment continued to rise (2.1%) but capacity constraints and adverse weather weighed on buildings and structures (-2.5%).
Alongside the economic recovery, equipment spending was boosted by federal tax incentives and accommodative financing conditions. The easing of supply chain pressures may be supporting growth more recently. In contrast, the buildings and structures component contracted over the first half of 2022, with progress impacted by labour and materials shortages and wet weather during the La Niña event.
By sector, non-mining capex (-0.3%q/q) has held around its current level for the past year after rebounding from the pandemic. Mining capex (-0.3%q/q) has been on an upward trajectory, though the level of investment remains subdued despite the tailwind of surging commodity prices.
Firms lifted their 3rd estimate of 2022/23 investment plans to $146bn, an uplift of 11.7% compared to the previous survey. Based on that projection, capex is on track for its strongest result since 2014/15 - albeit keep in mind that some of the uplift is reflecting inflationary effects. Non-mining investment plans were increased by 14.4% to $101.7bn while the outlook for mining sector capex was raised by 5.9% to $44.7bn.
Market expectations | Capital Expenditure
The median estimate for quarterly capex is for a 1.4% rise, with the range of forecasts spread between -0.5% to 4.0%. Today's survey will also include firms' 4th estimate of investment plans for 2022/23. Firms, on average, over the history of the survey have lifted investment plans by around 5% compared to estimate 3. That points to a figure of around $155bn, but a stronger projection looks likely based on the trajectory of the earlier estimates. My estimate is for a figure of between $165-170bn, equating to a robust uplift of between 12-16% from 3 months ago.
What to watch | Capital Expenditure
The question is whether the optimistic outlook for capex plans can hold up amid expectations for weaker global and domestic growth in 2023. That and high inflation suggests there could be downside risk for capex; however, a period of deferred investment through the pandemic and capacity constraints firms face suggests capex plans could remain resilient. I think the latter case is more likely, with indicators in recent NAB business surveys for capex, forward orders and capacity utilisation consistent with resilient investment.
