Australian private sector capital expenditure data for the December quarter are due to be released by the ABS today at 11:30am (AEDT). Uncertainty stemming from the emergence of the covid-19 pandemic has resulted in firms cutting back or shelving investment plans, though spending on capital goods has recently been supported by strengthening domestic demand conditions, improving business sentiment and expanded tax incentives in last year's Federal Budget.
As it stands | Capital ExpenditureCapex by the private sector fell for a 7th consecutive quarter with a 3.0% contraction in the September quarter, extending the decline through the year to -13.8% from -11.7%. At around $25.9bn, this was the lowest quarterly total for capex since 2007. Buildings and structures investment declined 3.7% to $13.8bn (-15.0%Y/Y) and equipment spending fell 2.2% to $12.1bn (-12.3%Y/Y).
By sector, non-mining investment declined by 3.0% in Q3 to $17.5bn (-18.2%Y/Y)—its 7th consecutive quarterly decline—with weakness across services (-3.3%) and manufacturing (-1.0%), and mining investment contracted by 3.1% to $8.4bn (-2.8%Y/Y).
The 4th estimate of capex plans put forward by firms for 2021/21 was nominated at around $105bn; this was 6.3% above the previous estimate from 3 months earlier but 10.3% lower than a year earlier, which highlights the severity of the impact of the pandemic on investment plans. For a full review of Q3's report see here
Market expectations | Capital Expenditure
Further weakness is expected to be reported today, with the market anticipating a 0.3% fall in capex for the December quarter, though the range of estimates varies widely from -2.0% to 5.0%.
Further weakness is expected to be reported today, with the market anticipating a 0.3% fall in capex for the December quarter, though the range of estimates varies widely from -2.0% to 5.0%.
Regarding investment plans, the 4th estimate put forward for 2020/21 in the previous survey was $105bn. However, due to changes in the survey, this will be revised higher to include the education and health care industries, with current estimates indicating this will be around $10bn ($6.6bn for health care and $3.5bn for education). From a revised starting point of around $115bn, applying the average upgrade between estimates 4 and 5 over the past 5 years (around 2.8%) points to a figure of around $118bn for estimate 5 for investment plans in 2020/21.
This survey will also include the 1st estimate of firms' capex plans for 2021/22. Estimate 1 for 2020/21 was $99.7bn, though this was before the emergence of the pandemic. As such, estimate 1 for 2021/22 will likely be much lower than this figure. Going back to 2019/20, estimate 1 was $92.1bn, so a figure potentially a little higher than this seems a reasonable guide for the 1st estimate of spending plans for 2021/22.
As alluded to above, from the December quarter survey onwards, there will be an expanded range of capex estimates available, including for both the health care and education industries that were previously outside its scope. For a full outline of the forthcoming changes, refer to the advice provided by the ABS here.