CapEx — Q4 | By the numbers
- 'Actual' CapEx in Q4 increased by 2.0% to $A30.093bn, surpassing the market forecast that looked for a 1% rise. Q3's figure was revised to 0.0% from the initial estimate of -0.5%. CapEx through the year lifted by 1.9%.
- Equipment, plant and machinery CapEx, which feeds into GDP calculations, increased modestly by 0.7% in Q4 to $14.019bn (prior rev +3.5% from +2.2%)
- Building and structures CapEx posted a 3.2% rise in the quarter to $16.074bn (prior rev -3.0% from -2.8%)
- The 5th estimate of investment intentions for 2018/19 was increased by 4.0% compared to estimate 4 to $118.361bn, which would be a 3.6% rise in total CapEx from 2017/18
- Estimate 1 for CapEx in 2019/20 was nominated at $92.144bn, an upgrade of 11.0% on the 1st estimate for 2018/19
CapEx — Q4 | The details
Starting with CapEx in Q4, the ABS reported that investment from the mining sector declined by 4.3% in the quarter to $7.928bn, to be -11.5% across the year. The underlying detail for the quarter showed a 2.7% fall in buildings and structures CapEx and equipment, plant and machinery down by 6.3%. This implies a residual drag associated with the completion of major resources projects.
CapEx from the non-mining sectors (manufacturing and services) lifted by 4.5% in Q4 to $22.165bn, representing annual growth of 7.8%. This was sufficient to offset the fall in mining CapEx. However, this was driven entirely by the services industries, in which CapEx lifted by 5.6% to $19.819bn (+9.1%Y/Y), while the manufacturing sector fell by 4.4% to $2.346bn (-2.1%Y/Y). The services industries boosted investment in buildings and structures (+9.3%q/q) and in equipment (+3.5%q/q). Manufacturing CapEx declined in both buildings and structures (-4.2%q/q) and equipment (-3.3%q/q).
Nationally, CapEx lifted by $592m in the quarter and this was driven by New South Wales (+$294m) and Queensland (+$240m). There were more modest rises in Victoria (+105m) and South Australia (+99m). Confirming the residual unwind from completing resources projects, CapEx in Western Australia fell by $247m and the Northern Territory declined by $242m (click chart, below, to expand).
Turning to the outlook, firms' reported to the Bureau during January and February, at which point forward-looking activity indicators from the business sector weakened notably. However, the survey showed that estimated CapEx for the 2018/19 financial was upgraded by 4.0% — a stronger than normal increase from estimate 4 to 5 — to $118.361bn. This figure points to CapEx in 2018/19 being 3.6% above the total from the previous financial year.
That increase is expected to be driven by an 8.5% rise in non-mining sector CapEx, with the services industries rising by 8.9% and manufacturing by 5.2%. The drag from the mining sector is now expected to be 6.8% across the current financial year (click chart, below, to expand).
For 2020/21, the 1st estimate was nominated at $92.144bn, which is an 11% rise when compared with the 1st estimate for 2018/19, and is the highest since estimate 1 in 2015/16. There is always a high degree of caution in over-interpreting from '1st estimates', though this figure was above what most analysts had been forecasting. Estimate 1 for mining sector CapEx was a 21.4% increase on a year earlier, possibly pointing to plans to lift investment to maintain operations during the production phase, while the non-mining sector showed a 6.6% lift, with manufacturing +5.2% and services industries +6.8%.
CapEx — Q4 | Insights
Today's report was broadly stronger than expected, coming amid a slowing in other indicators ahead of next week's GDP growth figures. The lift in the equipment, plant and machinery component was modest at 0.7% and only accounts for around 60% of business investment covered by the National Accounts, though it is still is a positive lead from a growth perspective to what appears to be a soft Q4. The investment outlook is the more significant takeaway from today's report. After a period of several years of transition, the drag to growth in the domestic economy from unwinding mining sector investment looks to have reached the end of the line. Rising investment expectations sets the path for non-mining business investment to become a growth driver, which is a key assumption within the Reserve Bank of Australia's growth forecasts.