As it stands | Capital Expenditure
Capex spending fell by 1.7% in the March quarter to $29.3bn against expectations for a 0.5% rise. From a year earlier, capex fell by 1.9%. Q1's weakness was broad based, with spending on buildings and structures falling by 2.8% to $15.5bn (-5.5%Y/Y) and equipment, plant and machinery easing by 0.5% to $13.8bn (+2.4%Y/Y).
Investment in the mining sector continued to unwind as remaining projects in the LNG sector moved closer to completion, with a 1.3% fall in the March quarter to $7.8bn. As a result, the annual pace of decline steepened from -11.2% to -12.9%, though that is well down from the Q3 2016 trough of -37.2%. Non-mining investment posted its first quarterly decline since Q3 2016 after contracting by 1.9% to $21.5bn (+2.8%Y/Y). That reflected a 7.4% fall from the manufacturing sector to $2.1bn (-8.5%Y/Y), as well as a 1.2% decline from 'other selected industries' (mainly services) to $19.3bn (+4.3%Y/Y).
The 2nd estimate of capex plans for the 2019/20 financial year was $99.1bn, which was a 7.6% upgrade on estimate 1 and 12.8% above estimate 2 from the previous financial year. Importantly, intentions for mining investment lifted by 21% from a year earlier to $32.4bn, pointing to its first year-to-year rise since 2012/13. Meanwhile, the gradual uptrend from the non-mining sector remained intact with expectations for 2019/20 at $66.7bn, implying a 9.2% year-to-year increase.
For a full review of Q1's data see here
Market expectations | Capital Expenditure
In today's release, capex spending is expected to have improved in Q2 with the median forecast according to Bloomberg situated at a 0.4% rise around a wide range of estimates from -1.7% to +3.0%.
Regarding investment intentions, Q2's report will include the 3rd estimate of expected capex for the full 2019/20 financial year. The median forecast for estimate 3 is $113.0bn, between a range of estimates from $101.0bn to $118.0bn. There will also be a finalised outcome for total capex spending in the 2018/19 financial year, which is likely to be little changed at around $122.0bn.
What to watch | Capital Expenditure
Markets will be focused on the 3rd estimate for investment plans in 2019/20, which were reported by firms between July and early-August. Since Q1's survey, there has been a range of developments to consider. Firstly, the outcome of May's federal election removed some uncertainty for firms over policy changes. Secondly, global uncertainty has continued to intensify in response to rising trade tensions and has been a headwind for investment plans for firms in other economies, particularly in the manufacturing sector. Thirdly, the Reserve Bank of Australia delivered back-to-back cash rate cuts in June and July. So, what will be the collective impact of these (and other) factors?
For context, the median forecast of $113.0bn implies a 14% upgrade on estimate 2, an outcome that would be in line with the average rate of increase from estimate 2 to estimate 3 over the past 5 years. It also points to a 10.3% rise on estimate 3 from 2018/19, which on face value is slightly less constructive than the expectation for a 12.8% rise indicated by estimate 2 for 2019/20.
This moderation aside, the key dynamic is that investment intentions appear on track to end 6 consecutive years of decline that was driven by mining investment rolling off from its mid-2012 peak following the construction-led boom that occurred in the early part of the decade. With the unwind in mining investment close to reaching the end of the line, the outlook is more favourable with the focus expected to turn to capex spending to maintain production.
Meanwhile, the outlook for non-mining investment is positive and is supported by non-residential construction work and a healthy pipeline of projects in transport and electricity-related infrastructure, though weakness was evident in these areas in Q2 as highlighted in yesterday's Construction Work Done data (see here). Q1's survey also showed that equipment spending by the non-mining sector was projected to rise by around 10% in the current financial year.
In today's release, capex spending is expected to have improved in Q2 with the median forecast according to Bloomberg situated at a 0.4% rise around a wide range of estimates from -1.7% to +3.0%.
Regarding investment intentions, Q2's report will include the 3rd estimate of expected capex for the full 2019/20 financial year. The median forecast for estimate 3 is $113.0bn, between a range of estimates from $101.0bn to $118.0bn. There will also be a finalised outcome for total capex spending in the 2018/19 financial year, which is likely to be little changed at around $122.0bn.
What to watch | Capital Expenditure
Markets will be focused on the 3rd estimate for investment plans in 2019/20, which were reported by firms between July and early-August. Since Q1's survey, there has been a range of developments to consider. Firstly, the outcome of May's federal election removed some uncertainty for firms over policy changes. Secondly, global uncertainty has continued to intensify in response to rising trade tensions and has been a headwind for investment plans for firms in other economies, particularly in the manufacturing sector. Thirdly, the Reserve Bank of Australia delivered back-to-back cash rate cuts in June and July. So, what will be the collective impact of these (and other) factors?
For context, the median forecast of $113.0bn implies a 14% upgrade on estimate 2, an outcome that would be in line with the average rate of increase from estimate 2 to estimate 3 over the past 5 years. It also points to a 10.3% rise on estimate 3 from 2018/19, which on face value is slightly less constructive than the expectation for a 12.8% rise indicated by estimate 2 for 2019/20.
This moderation aside, the key dynamic is that investment intentions appear on track to end 6 consecutive years of decline that was driven by mining investment rolling off from its mid-2012 peak following the construction-led boom that occurred in the early part of the decade. With the unwind in mining investment close to reaching the end of the line, the outlook is more favourable with the focus expected to turn to capex spending to maintain production.
Meanwhile, the outlook for non-mining investment is positive and is supported by non-residential construction work and a healthy pipeline of projects in transport and electricity-related infrastructure, though weakness was evident in these areas in Q2 as highlighted in yesterday's Construction Work Done data (see here). Q1's survey also showed that equipment spending by the non-mining sector was projected to rise by around 10% in the current financial year.
