As it stands | Capital Expenditure
Capex was weak ahead of the full impact of the pandemic falling by 1.6% in the March quarter — its fifth consecutive quarterly contraction — to a 10-year low of $27.964bn (-6.1%yr) (see here). The weak outcome in Q1 was broad based with equipment, plant and machinery declining by 2.3% to $13.265bn (-4.0%yr) and buildings and structures contracting by 1.1% to $14.699bn (-7.9%yr).
The sector breakdown showed a contrasting mix with the early stages of the pandemic intensifying the weakness in non-mining sector capex through a 4% fall in Q1 to $19.435bn that centred on a sizeable pullback in investment from services industries (-5.2%qtr, -12.8%yr), though the manufacturing sector showed resilience to lift by 5.7% in Q1 (7.2%yr). Meanwhile, the unwind in the mining investment cycle was finally on track to turn after 6 consecutive years of decline after lifting by 4.2%q/q to $8.53bn (6.9%yr).
Notable was the weakening in capex intentions as firms revised their investment plans during the early stages of the pandemic. The 6th estimate of capex spending for 2019/20 declined by 3.8% to $115.4bn — an unusual occurrence that late into the estimates cycle. The 2nd estimate of plans in 2020/21 rolled over to point to a 7.9% fall through the year, whereas three months earlier estimate 1 had implied capex would rise by 8.2% in 2020/21.
Market expectations | Capital Expenditure
The median estimate according to Bloomberg for today's report is for capex to fall by 8.2% in the June quarter; near to the largest contraction in a single quarter on record, with individual forecasts situated between -15.0% and -5.0%. For the intentions component, no median estimate is put forward but capex plans for 2020/21 could come in around $95bn on the 3rd estimate, pointing to a year to year decline in the order of 16%.
What to watch | Capital Expenditure
Most of the attention centres on capex intentions in this report, with today's 3rd estimate of plans for 2020/21 to provide an indication of the extent to which firms are delaying or shelving investment amid weak economic conditions and the high degree of uncertainty over the outlook the pandemic has created. Business survey data has shown that the services industries have been hardest hit by these effects, while the manufacturing sector has been more resilient. In Australia's case, mining sector investment is a key consideration and though the effects of the pandemic appear to have been less severe than in other sectors of the economy, it may result in the projected increase in investment plans being pared back.
