CapEx — Q1 | By the numbers
- 'Actual' CapEx in Q1 fell by 1.7% (-$519m) to $29.29bn; a sizeable miss on the expected outcome of +0.5%. Q4's previously reported increase of 2.0% was revised down to show a gain of 1.3%. Through the year, capex fell by -1.9% after swinging from a +1.0% pace for the year ending Q4.
- Equipment, plant and machinery investment fell by -0.5%q/q (-$73m) to $13.80bn (prior rev 0.0% from +0.7%). The annual pace slowed sharply from 6.8% to 2.4%.
- Investment on building and structures declined by -2.8%q/q (-$442m) to $15.49bn (prior rev +2.5% from +3.2%), which accelerated the annual decline from -3.6% to -5.5%.
- The 6th estimate of investment intentions for 2018/19 was nominated at $122.19bn, which is a 3.7% upgrade on estimate 5 and a rise of 3.8% on a year-to-year basis
- Estimate 2 for CapEx in the 2019/20 financial year was forecast at $99.14bn, lifting by 7.6% on estimate 1 and by 12.8% compared with estimate 2 for 2018/19
CapEx — Q1 | The details
The headline fall in capex of 1.7% (-$519m) to $29.29bn included broad-based weakness. Mining sector investment fell by 1.3% (-$102m) to $7.83bn to be down by 12.9% across the year. The underlying detail showed a 3.4% decline on capex for buildings and structures, but equipment, plant and machinery lifted by 7.6%.
Looking at the non-mining sectors (including manufacturing and services), capex fell by a combined 1.9% (-$413m) in Q1 to $21.462bn, which slowed annual growth to 2.8%. Investment from the services sector fell by 1.2% (-$242m) to $19.31bn, though the detail was mixed; building and structures -1.2% and equipment +0.8%. Investment by manufacturing firms fell for the second consecutive quarter, slumping by 7.4% (-$171m) to $2.15bn (-8.5%Y/Y). There were sharp falls for both buildings and structures (-10.0%q/q) and equipment (-5.2%q/q).
Turning to investment intentions, the ABS reported that firms expect total capex in 2018/19 to be $122.19bn as of estimate 6. This is a 3.7% upgrade on the previous estimate and is similar to the increase from estimate 4 to 5 (+3.6%). Currently, the forecast implies that capex in 2018/19 will be 3.8% above the level from 2017/18. Investment from the non-mining sector is now projected to rise by 9.4% through the year, with mining dragging by 6.7%.
In 2019/20, the 2nd estimate for capex for the full 12 months was nominated at $99.14bn. This is 7.6% above estimate 1 and a 12.8% increase on estimate 2 for 2018/19. It was also stronger than markets had anticipated at $96.0bn. Mining investment, with a forecast rise of 21.0% through the year, appears likely to finally turn in 2019/20 after 6 consecutive years of decline following the wind down from the construction-driven boom in the early part of the decade. Surging commodity prices are likely to be a key factor driving the turnaround in intentions. Non-mining investment is projected to rise by 9.2% over the year, with services up by 9.6% and manufacturing lifting by a more modest 6.5%.
On the surface these details are upbeat, but it should be noted that the early estimates are not always accurate guides for actual investment. That seems particularly relevant here, as firms were reporting to the ABS during April and May which coincided with the lead up to the recent federal election. Due to the inherent uncertainties, firms may have been delaying investment plans until the result was known.
CapEx — Q1 | Insights
This update was disappointingly weak for Q1 and is another indication that GDP growth is likely to ease further following the sharp slowdown recorded over the second half of last year. The Reserve Bank of Australia is optimistic in its outlook for business investment and expects it to help support economic growth over the next couple of years. The detail from the intentions for 2019/20 appear constructive to that view, though given the uncertainty associated with the federal election it may be best to wait for Q2's update to gain a clearer understanding.
