CapEx — Q1 | By the numbers
- Total private sector capex spending fell by 1.6% over the March quarter to $27.964bn, though that was smaller than expected (-2.8%) after a 2.6% decline in Q4. In annual terms, the decline extended from -5.9% to -6.1%.
- Equipment, plant and machinery investment declined by 2.3% to $13.265bn, with the contraction over the year accelerating from -1.6% to -4.0%.
- Buildings and structures capex was 1.1% lower in Q1 to $14.699bn, though a base effect trimmed the annual decline from -9.5% to -7.9%.
- On intentions, the immediate impact of COVID-19-related uncertainty on business investment plans was clear. Estimate 6 of investment plans for the 2019/20 financial year was nominated at $115.43bn, which was 3.8% lower compared to estimate 5 provided by firms 3 months ago and some 5.6% weaker than it was a year earlier.
- Meanwhile, firms' 2nd estimate of investment plans for 2020/21 was significantly weaker at $90.89bn; down by 8.8% on estimate 1 and 7.9% below estimate 2 for the 2019/20 financial year.
CapEx — Q1 | The details
Australian firms cut capital expenditure for the 5th straight quarter with a 1.6% reduction coming through in the March quarter. This takes the level to 6.1% below where it was a year earlier, and unsurprisingly businesses indicated in this report that much more material falls are on the way. Consistent with recent NAB and ABS business surveys, with visibility over the outlook extremely limited and after sustaining significant disruption to trading conditions and sustaining cash flow impacts, firms outside of mining will be reluctant to invest for some time.
Australian firms cut capital expenditure for the 5th straight quarter with a 1.6% reduction coming through in the March quarter. This takes the level to 6.1% below where it was a year earlier, and unsurprisingly businesses indicated in this report that much more material falls are on the way. Consistent with recent NAB and ABS business surveys, with visibility over the outlook extremely limited and after sustaining significant disruption to trading conditions and sustaining cash flow impacts, firms outside of mining will be reluctant to invest for some time.
The sector details were mixed, with the overall theme being that mining investment was lifting as weakness in non-mining capex was gathering pace. Capex from the mining sector advanced by 4.2% in Q1 to $8.53bn as annual growth lifted sharply from 0.7% to 6.9%. These outturns were the strongest since the investment boom through the early 2010s. Non-mining capex continued to go backwards, and at a pace, falling by 4.0% in Q1 to $19.44bn to be down by 10.8% through the year.
This weakness centres on the services sector in which capex declined by 5.2% for a year to year decline of 12.8% — its sharpest rate of contraction since the recession of the 1990s.
On intentions, firms now expect capex to come in at $115.43bn for 2019/20 according to estimate 6, which was down by 3.8% on the previous estimate put forward by firms to the ABS three months ago. That may appear to be a small decline, though we need to remember that estimate 6 incorporates 9 months of actual investment and a 3-month forecast. As such, it is unusual to see intentions falling this late in the estimates cycle, which highlights that the impact of the uncertainty of the crisis was immediate in terms of the shelving or delaying of investment plans for some firms.
The outlook for 2020/21 was weak at $90.89bn based on estimate 2 collated through April and May, which was 8.8% down of the first estimate taken three months earlier. On that basis, capex plans have fallen 7.9% below estimate 2 for the previous financial year, which is a seismic reversal from 3 months ago when estimate 1 for 2020/21 was pointing to an 8.2% rise over the year. That weakness is to be driven by the non-mining sector in which investment plans point to a contraction of 16.9% from year to year, and while mining investment plans are projected to advance by 10.4%, though that will not be enough to offset the overall drag on the economy.
CapEx — Q1 | Insights
Weakness in business investment extended into 2020 ahead of significant declines with firms in the non-mining sector shelving or delaying plans due to the collapse in trading conditions and confidence and the overall uncertainty of the outlook in response to the COVID-19 crisis. For Q1 GDP, the contraction in buildings and structures (-1.1%) was less severe than in the December quarter and was consistent with yesterday's construction work done data. Equipment investment saw renewed weakness (-2.3%) with business investment to subtract noticeably from output growth in Q1.
