As it stands | Capital Expenditure
In the June quarter, capex spending declined unexpectedly by 0.5% to $29.2bn to be down by 1.0% on a year earlier. The weakness in Q3 was centered on construction, with buildings and structures contracting by 3.3% to $15.1bn (-6.6%Y/Y), while equipment, plant and machinery lifted by 2.5% to $14.2bn (+5.7%Y/Y).
Mining sector investment posted its strongest quarterly result in 5 years in Q2 rising by 1.7% to $8.0bn as the wind-down from completing LNG projects was consigned to the past. The annual pace of decline slowed from -12.2% to -6.8%; well down from the trough reached 3 years earlier at -37.1%. Non-mining investment contracted by 1.3% in the quarter to $21.2bn, with the annual pace pulling back from 2.8% to 1.4%. After sizeable declines in the previous two quarters, manufacturing capex lifted by 8.5% in Q3 to $2.4bn (-0.4%Y/Y), though this was offset by a 2.4% fall in services capex to $18.8bn (+1.6%Y/Y).
The 3rd estimate of capex plans for 2019/20 was upgraded by 14.9% on estimate 2 to a total of $113.4bn. This figure was 10.7% above the 3rd estimate put forward for the 2018/19 financial year. Investment intentions in the mining sector for 2019/20 lifted by 20.7% on a year earlier to $38.1bn to point to its first year-to-year rise since 2012/13. Non-mining investment was projected to rise by 6.2% over 2019/20 to $75.3bn, with intentions in the services sector up by 5.8% to $66.0bn and manufacturing lifting by 8.6% to $9.3bn.
For a full review of Q2's report see here
In today's report, the median expectation according to Bloomberg is for capex to be flat (0.0%) over Q3, between a range of forecasts from -1.4% to +1.0%. In terms of investment intentions, Q3's report includes the 4th estimate of expected capex for the 2019/20 financial year, which is based on 3 months of actual spending and a forecast for the remaining 9 months. The median expectation for estimate 4 is $120.0bn, with individual forecasts ranging between $113.5bn and $123.0bn.
What to watch | Capital Expenditure
The all-important intentions component is where markets will focus their attention. Firms reported their '4th estimates' of capex plans in 2019/20 during October and November. Over the period, global uncertainty eased slightly as the US and China agreed to the outline of a partial trade deal, the UK reach a new Brexit deal with the EU, while central banks in the US, Europe, Japan and locally in Australia reiterated their respective monetary policy stances would remain accommodative. However, caution still attends the outlook for an improving global economy in 2020, while from a domestic standpoint the NAB's Business Survey continued to show that conditions and confidence were stuck below their long-run averages.
The median forecast for estimate 4 of $120.0bn for 2019/20 implies a lift of 5.8% on estimate 3 and is 5.4% above the 4th estimate put forward for 2018/19. The upgrade of 5.4% would only be in line with the series average for year-to-year increases for the 4th estimate, though if it materialises it would be the strongest outcome since 2011/12, which highlights the intense headwinds business investment has faced over recent years as the mining sector has unwound from the boom in the early part of the decade. The RBA closely monitors the intentions component in this survey and in its recent Statement on Monetary Policy it forecast business investment to rise by 6.9% over the year to mid-2020, supported by both mining and non-mining investment.
