CapEx — Q4 | By the numbers
- Total private sector capex spending contracted by 2.8% in the December quarter (-$816m) to $28.454bn against the consensus forecast for a 0.5% rise (prior revised -0.4% from -0.2%). In annual terms, the decline was accelerated from -1.6% to -5.8%.
- Equipment, plant and machinery investment lifted by 0.8% ($110m) to $13.639bn but this followed a 3.6% fall in Q3, while the annual decline slowed from -2.9% to -1.4%.
- Buildings and structures investment fell by a sharp 5.9% in Q4 (-$925m) to $14.815bn after a 2.5% lift in the previous quarter; the annual fall steepening from -0.6% to -9.6%.
- The 5th estimate of investment plans for the 2019/20 financial year was nominated at $120.3bn; an upgrade of 2.8% on estimate 4 but implying only a modest rise of 2.1% through the year. Meanwhile, firms' 1st estimate of investment plans for 2020/21 was $100.2bn; 8.8% above estimate 1 from 2019/20
CapEx — Q4 | The details
Australian firms pulled back on capital expenditure for a 4th consecutive quarter, with Q4's 2.8% contraction the weakest outcome since a 4.0% fall in Q3 2016. Over the year to the December quarter, capex fell by 5.8%, which is its weakest pace in nearly 3 years. The weakness has centred on the non-mining sector of the Australian economy where confidence among firms has deteriorated in response to weak domestic demand conditions and elevated uncertainty over the global backdrop, sapping their willingness to invest in spite of an unprecedented level of monetary stimulus from the RBA.
Australian firms pulled back on capital expenditure for a 4th consecutive quarter, with Q4's 2.8% contraction the weakest outcome since a 4.0% fall in Q3 2016. Over the year to the December quarter, capex fell by 5.8%, which is its weakest pace in nearly 3 years. The weakness has centred on the non-mining sector of the Australian economy where confidence among firms has deteriorated in response to weak domestic demand conditions and elevated uncertainty over the global backdrop, sapping their willingness to invest in spite of an unprecedented level of monetary stimulus from the RBA.
Looking further into the details, non-mining capex contracted for the 4th straight quarter after falling by 2.8% in Q4 (-$592m) to $20.303bn, accelerating the annual decline from -2.5% to -8.3% to its weakest point since Q1 2013. Within this, 'other industries' (mainly services) capex extended its period of weakness out to a year with a 1.9% fall in Q4 (-$343m) to $18.076bn to be down by 8.6% in annual terms, while manufacturing capex saw a notably sharp contraction of 10.1% in Q4 (-$249m) to $2.227bn (-5.4%yr), though this after strong rises in the previous two quarters that was somewhat counterintuitive given the global downturn in the sector. Mining sector investment fell by 2.7% in Q4 (-$224m) to $8.151bn, with the underlying detail indicating weakness in both building and equipment, though over the past year capex has stabilised (0.9%yr) as the remaining large-scale projects were completed.
By state, capex saw broad-based declines in Q4; New South Wales -6.3% (-7.6%yr), Victoria -5.6% (-6.8%yr), Queensland -4.0% (-8.0%yr), South Australia -1.4% (-5.7%yr) and Western Australia -1.2% (+0.6%yr). Against this trend, the Northern Territory (+17.3%qtr, -11.7%yr) and Tasmania (+8.0%qtr, -25.0%yr) recorded increases in Q4 but are both down sharply on a year earlier, while the Australian Capital Territory is the only jurisdiction where capex was up in the quarter (+30.9%) and over the year (+10.5%).
Turning to the intentions component from today's survey, the 5th estimate of total capex spending by firms in the 2019/20 financial year was nominated at $120.3bn. This figure has been upgraded by 2.8% on the level firms reported to the ABS 3 months earlier ($117.0bn), but this implies that capex will only rise by 2.1% in the current financial year compared with 2018/19. Within this, mining investment remains on track to end 6 consecutive years of decline with an anticipated rise of 11.4%, but non-mining mining investment is projected to fall by 1.7% through 2019/20, weighed by the services sector (-2.3%) with some moderation coming through from a 2.5% rise in manufacturing capex.
Firms also provided their 1st estimates for capex spending in 2020/21, reporting these to the ABS during January and February. Estimate 1 was nominated at $100.2bn, which is 8.8% above the first estimate that firms put forward for 2019/20. This, however, is centred on a projected rise of 28.0% in mining investment against 0.6% fall in non-mining investment plans, driven by services (-1.6%) with manufacturing up by 6.8%. Typically, 1st estimates prove to be an unreliable guide to actual investment and extra caution is warranted in this case after the summer bushfires and recent coronavirus outbreak in China.
CapEx — Q4 | Insights
The weakness in today's report around the sharp contraction in building and structures (-5.9%qtr) confirmed the weakness conveyed in yesterday's construction activity data (see here). Details for equipment spending were a modest positive (+0.8%qtr) after contracting sharply in Q3. Overall, business investment is likely to have continued to weigh on economic activity in the December quarter with weakness in confidence, soft domestic demand conditions and uncertainty offshore strong headwinds.
