Australian private sector capital expenditure advanced above expectations in the December quarter, driven by equipment spending in response to the improving momentum in the economy and recent tax incentive measures, while forward-looking investment plans were also on the robust side.
CapEx — Q4 | By the numbers
- Private sector capex lifted by 3.0% in the December quarter to $29.385bn. This was above the median estimate for a 1% rise and after a 3.1% fall in the previous quarter. Capex was 7.5% lower through the year to Q4, though this is somewhat better than in Q3 (-12.4% revised from -13.8%).
- Equipment, plant and machinery capex lifted by 5.7% to $13.924bn, but this is down 5.2% through the year.
- Buildings and structures capex ticked up by 0.7%q/q to $15.461bn to be 9.4% lower year over year.
- Forward-looking investment plans on firms' 5th estimate for spending in 2020/21 was $121.4bn. This was 4.8% higher than the 4th estimate put forward 3 months ago, but it points to capex falling by 7.1% when compared with the same estimate for 2019/20. Meanwhile, estimate 1 for 2021/22 was $105.5bn, which is 3.4% down on a year-to-year (and pre-pandemic) basis.
CapEx — Q4 | The details
In a positive sign for the economic recovery, capex has rebounded on the reopening, but the strength was concentrated in equipment investment (5.7%) and investment plans for 2020/21 still point to a sizeable decline (-7.1%) in spending when compared with the previous financial year. Measures of business conditions and confidence improved sharply over the second half of 2020 as the economy opened up more widely, while the Federal Budget greatly expanded provisions around tax incentives to encourage investment to be brought forward. The boost in equipment spending aligns with the strength in capital imports, which the international trade data reports lifted by 10.5% (nominal) in Q4 after an 8.1% lift in Q3, consistent with a response to improving domestic demand conditions.
In a positive sign for the economic recovery, capex has rebounded on the reopening, but the strength was concentrated in equipment investment (5.7%) and investment plans for 2020/21 still point to a sizeable decline (-7.1%) in spending when compared with the previous financial year. Measures of business conditions and confidence improved sharply over the second half of 2020 as the economy opened up more widely, while the Federal Budget greatly expanded provisions around tax incentives to encourage investment to be brought forward. The boost in equipment spending aligns with the strength in capital imports, which the international trade data reports lifted by 10.5% (nominal) in Q4 after an 8.1% lift in Q3, consistent with a response to improving domestic demand conditions.
Capex by the non-mining sector lifted 4.9% in Q4 (-9.7%Y/Y), with equipment spending receiving an 8.4% boost, while buildings and structures was little more than flat (0.9%). Meanwhile, mining capex was weaker in the quarter (-1.4%), making this its 3rd consecutive quarterly fall, weighed notably by equipment spending (-5.9%). Buildings and structures lifted slightly (0.4%), leaving total capex in the mining sector modestly lower through the year (-1.2%).
A summary of total capex across each broad sector and industry is shown in the table below.
Regarding forward-looking investment plans, Australian firms estimated total capex in the 2020/21 financial year will be $121.4bn, based on the 5th estimate. This figure is 4.8% above estimate 4 ($115.8bn) put forward 3 months earlier, but 7.1% lower than at the same stage of the estimates cycle last year ($130.7bn), though that was before the onset of the pandemic.
Within this, non-mining capex is on track to fall 8.2% year to year and mining capex is pointing to a 4.4% contraction. This more clearly highlights the weight of the pandemic on investment plans across the economy.
Today's data also included the 1st estimate of investment plans for 2021/22, which was nominated at $105.5bn. This is 3.4% lower than estimate 1 for 2020/21 ($109.2bn), with mining -5.6% and non-mining -2.2%, but again these are based off comparisions to a pre-pandemic economy.
CapEx — Q4 | Insights
Capex posted its best quarterly rise (3.0%) since 2012 after a period of cyclical and then pandemic-related weakness. But the gain is much less impressive when considering that it still leaves capex 7.5% down over the year. The reopening leading to improving domestic demand, better business conditions and sentiment and tax incentives to encourage investment appear the key factors behind today's result, in particular the boost to equipment spending (5.7%), which saw its strongest quarterly result in 5 years.
