Australia's private sector capital expenditure report for the September quarter is scheduled for release today (11:30am AEDT). Going into the Delta-affected Q3, the capex cycle was in a strong upturn rebounding from the 2020 COVID recession. The winter lockdowns are likely to have temporarily stalled this progress but the outlook beyond these disruptions looks to remain positive.
The expansion in capex continued in the June quarter with a 4.4% rise. This lifted capex to $32.7bn, to be up 14.1% from the 2020 trough and 3% above its pre-pandemic level.
Equipment spending has been driving this rebound with firms lifting expenditure to meet the rise in demand generated by the economic recovery. Tax incentives included and then expanded upon in recent federal budgets and low financing costs have supported this investment. Equipment capex was 4.3% higher in Q3 and up 17.3% over the year. Spending on buildings and structures increased to a 4.6% rise in the quarter following more modest gains in the previous two quarters; a result that turned annual growth positive (6.5%) for the first time in more than 3 years.
By sector, a 6% rise in the non-mining sector lifted capex to almost 19% above the depths seen in 2020. Equipment investment (5.3%q/q) and spending on buildings and structures (6.9%q/q) was expanding at a fast pace. Mining sector capex was up modestly in Q2 (0.4%) and was 2.2% higher through the year. Despite elevated commodity prices, mining investment remained around its level from recent years.
The previous survey included firms' 3rd estimate of capex spending intentions for 2021/22, a figure nominated at $127.7bn. This was a 12.5% upgrade on the 2nd estimate from 3 months earlier, while investment plans according to estimate 3 were running 17.5% ahead of the equivalent estimate taken in 2020 during the early stages of the reopening of the economy.
Market expectations | Capital Expenditure
In the September quarter, the median estimate is for a 2.4% fall in capex. The band of estimates for the outcome sits between -5% on the low side to 1.5% on the upside. Today's survey will also include the 4th estimate of firms' capex plans for 2021/22. This figure is the big unknown given the lockdowns seen in Q3. Insights from the RBA's liaison program indicate that firms have largely delayed rather than cancelled investment plans in response to these latest disruptions. That may be reflective of the relative resilience seen in business confidence measures in the quarter compared to the large falls in 2020. A result consistent with that would be around $130bn on Estimate 4, however I think intentions could come in a bit higher than this as firms upgrade investment plans to catch up for the weakness in Q3 spending.
In the September quarter, the median estimate is for a 2.4% fall in capex. The band of estimates for the outcome sits between -5% on the low side to 1.5% on the upside. Today's survey will also include the 4th estimate of firms' capex plans for 2021/22. This figure is the big unknown given the lockdowns seen in Q3. Insights from the RBA's liaison program indicate that firms have largely delayed rather than cancelled investment plans in response to these latest disruptions. That may be reflective of the relative resilience seen in business confidence measures in the quarter compared to the large falls in 2020. A result consistent with that would be around $130bn on Estimate 4, however I think intentions could come in a bit higher than this as firms upgrade investment plans to catch up for the weakness in Q3 spending.
Today's report is the intersection of the upswing in capex running into the Delta disruptions. Capex is expected to have been weak in Q3 as a result, but the key is how quickly the earlier momentum can be re-established. The investment plans component will be the best way to help inform whether the weakness is likely to be temporary or if the disruptions in Q3 may have a more prolonged effect.