Australia's quarterly update on business investment is due today (11:30am AEDT). The report is based on a survey of around 10,000 private sector firms tracking their capital expenditure (capex) each quarter as well as asking for estimates of their expected investment spending. Business investment has been a notable point of strength in the Australian economy over the past year and that is expected to have continued into the September quarter.
Capex has accelerated over the past year, defying tighter financing conditions and slowing economic growth. In the June quarter, capex lifted by 2.8% to be up by 10.8% through the year, the fastest annual growth rate since the rebound from the Covid recession.
This upswing has been driven by the non-mining sector (3.5%q/q, 14.2%Y/Y), with mining sector capex up modestly (0.9%q/q, 2.7%Y/Y). Tax incentives and eased pressures in global supply chains have supported equipment spending (1.9%q/q, 6.4%Y/Y); there has also been a sharp rise in the buildings and structures component (3.5%q/q, 15%Y/Y) in response to investment in renewable energy projects and due to tight supply spurring an upturn in the pipeline of industrial property under construction.
... and forward-looking investment plans have been resilient
Despite the broader headwinds to the economic climate, the ABS's survey reports that firms' investment plans remain on the rise. The 3rd estimate of investment plans for the current 2023/24 financial year was nominated at $157.8bn, an increase of 14.5% on the previous estimate and 7.1% higher than a year earlier; however, these increases are partly boosted by inflationary effects. In absolute terms, investment plans are currently at their highest level since 2014/15.
A further rise in capex is expected in Q3
Expectations going into today's report are for capex to have moderated in the September quarter to 0.8% rise. The survey component will see firms submitting their 4th estimates of investment intentions for 2023/24. Over the history of the survey, plans lift on average by around 5% compared to firms' 3rd estimates. Given current trends, I anticipate a stronger upgrade in the order of 7%. This would elevate 2023/24 investment plans to a figure just short of $170bn.
