Australian private sector capital expenditure data for the March quarter is due to be released by the ABS this morning at 11:30am (AEST). Capex was starting to rebound in the December quarter, with the reopening and expanded tax incentives encouraging firms to boost equipment spending. This is expected to have continued into the March quarter, while forward-looking investment plans are set to be upgraded with the earlier extreme uncertainty associated with the pandemic dissipating.
As it stands | Capital ExpenditureCapex had been weak for several years prior to 2020. The recession that followed the onset of the pandemic led to a further slump as firms cut back or shelved investment plans in a highly uncertain climate and to preserve liquidity. But with the economy reopening and activity rebounding sharply, capex lifted by 3.0% in Q4 (-7.5%Y/Y) making this its strongest quarterly rise since the period of the mining investment boom around a decade earlier (full review here).
The rebound in capex was heavily weighted towards equipment spending (5.7%q/q) with firms investing to meet strong demand after the lockdowns and as a response to greatly expanded tax incentives for firms in the 2020/21 Budget (which were then extended in the most recent Budget earlier this month). In contrast, buildings and structures lifted modestly rising by 0.7%q/q.
Capex in the non-mining sector advanced by 4.9%q/q to lead the way. Within this, there was an 8.4% surge in equipment investment while buildings and structures were up 0.9%q/q. Mining sector capex remained subdued despite elevated commodity prices, recording a 1.4% fall overall in Q4.
Firms' 5th estimate of capex plans for 2020/21 was revised to $121.4bn, which was an upgrade of 4.8% on the 4th estimate but 7.1% lower than the total put forward a year earlier in a pre-pandemic economy. Similarly, estimate 1 for 2021/22 was lowered by 3.4% from a year earlier to $105.5bn.
Market expectations | Capital Expenditure
The capex rebound is expected to have continued since the turn of the year, with the market looking for a 2.1% rise in the March quarter. Individual estimates for the outcome range between 1.0% to 5.0%.
The capex rebound is expected to have continued since the turn of the year, with the market looking for a 2.1% rise in the March quarter. Individual estimates for the outcome range between 1.0% to 5.0%.
For investment plans, the 6th estimate for 2020/21 is likely to be upgraded modestly. Over the past 5 years, the average upgrade from estimate 5 to estimate 6 has been 1.3%. Given the strength of the reopening, a larger upgrade seems more likely here to around say $124bn from $121.4bn (+2.5%).
Meanwhile, estimate 2 for 2021/22 is in line for an upgrade as well from the $105.5bn figure put forward 3 months ago. Going back to last year, the emergence of the pandemic saw investment plans plunge by around 9% in estimate 2 compared to estimate 1. With the reopening widening out and measures of business conditions and confidence at survey highs, this decline may be fully reversed with a 9% rise to $115bn for estimate 2.
The intentions component of today's survey will be of most interest to markets, with the key question being the extent to which firms' investment plans are being upgraded in response to the rebounding economy. This will also pose the question as to how much of the potential upgrade can be attributed to reopening dynamics compared to more structural shifts occurring as a result of the pandemic.