Preview: Capital Expenditure Q4
Australia's capital expenditure (capex) survey for the December quarter is scheduled for release by the ABS at 11:30am (AEDT) today. The highly informative capex survey provides a partial read on business investment each quarter and also includes an intentions component where firms submit estimates of their anticipated level of capex spending. In each of the last three quarters, capex spending has declined where the weakness has centred on the non-mining sector in response to soft domestic demand conditions and uncertainty over the global backdrop. Meanwhile, the outlook for mining sector investment has been gradually improving following six years of decline.
As it stands | Capital Expenditure
Capex by Australian firms fell by 0.2% in the September quarter to $29.4bn to be down by 1.3% over the year. The underlying details were mixed; spending on building and structures rising by 2.7% to $15.9bn (-0.3%yr) but more than offset by a 3.5% fall in expenditure on equipment, plant and machinery to $13.6bn (-2.4%yr).
On a cross-sector basis, mining sector capex posted a 3.9% rise in Q3 to $8.5bn, turning annual growth positive for the first time since Q1 2013 at 1.2%. Against an improving profile in the mining sector, non-mining capex contracted for the third straight quarter falling by 1.8% in Q3 to $20.9bn to be down by 2.3% over the year, which was its worst annual result in 4 years and comes in response to weak domestic demand conditions and uncertainty offshore. The decline was centred on the services sector where capex contracted by 2.7% in the quarter to $18.4bn (-3.0%yr), amid resilience from manufacturing investment (+5.5%q/q, +3.0%Y/Y) despite the global downturn in the sector.
The 4th estimate of firms' capex plans for the 2019/20 financial year was softer than expected at $116.7bn. This figure was up by 3.4% on estimate 3 and implied only a modest year-to-year rise of 2.5% in capex spending. Intentions for services firms were notably weak in pointing to a 3.3% decline compared with 2018/19 as a soft domestic economy and uncertainty over the global outlook weighed on investment plans. In the mining sector, intentions were much more constructive, with investment on track to expand by 15.7% through 2019/20 for its first year-to-year increase in 7 years.
For a full review of Q3's capex survey see here
Market expectations | Capital Expenditure
In today's report, the consensus outcome according to Bloomberg's survey is for capex to rise by 0.5% in Q4, between a range of estimates from -1.5% to +1.5%. The intentions component will include a fifth estimate for total capex spending in 2019/20 and also the first estimate of plans for the 2020/21 financial year.
What to watch | Capital Expenditure
According to the NAB's Business Survey, confidence levels in the business sector have weakened to be around their lowest since mid 2013 in what has been a challenging climate of soft domestic demand conditions and an uncertain global backdrop. The situation has been further complicated by Australia's summer bushfires and the outbreak of the coronavirus in China. In light of this, the intentions component of the survey is where most of the focus will be for markets, most notably the first estimate for 2020/21. Firms reported their capex plans to the ABS in January to February, so this will offer an early gauge on how sentiment may have been impacted. For those casting their view towards next week's Q4 GDP outcome, the details for capex spending on equipment, plant and machinery is where to look.
