The March quarter private sector Australian capital expenditure survey is due for release at 11:30am (AEST) this morning. The upswing in business investment that emerged alongside the broader economic recovery stalled over the second half of last year, disrupted by global supply chain pressures and domestic lockdowns. Some momentum is expected to have been regained in the first quarter while forward-looking investment plans should remain solid.
Capex lifted by 1.1% in the December quarter but was flat overall through the back half of the year, stalling the momentum of the upswing seen over the first half of 2021 (9.9%). Overall, capex was around 2% above its subdued pre-Covid level.
Spending on buildings and structures lifted by 2.2% in the quarter to be up 3.3% over the second half. This was in contrast to weakness in equipment spending, which contracted by 3.5% over the second half (-0.1% in Q4) as supply chain pressures and lockdowns saw purchasing decisions delayed. Equipment spending had surged by more than 12% in the first half of the year on the back of accommodative financing conditions, tax incentives and rising demand associated with the economic recovery.
By sector, non-mining investment declined over the second half of the year (-3.5%) due mainly to equipment spending losing momentum. Mining sector investment advanced over the period (6%) but remained around the levels seen over recent years despite a surge in commodity prices.
Firms updated their investment intentions for 2021/22, with plans upgraded by 1.6% to around $141bn. This figure implied capex was on track to rise by about 16% compared to the previous financial year. Meanwhile, year-ahead plans for 2022/23 were nominated at $116.7bn, the strongest figure put forward as a 1st estimate since 2014/15.
Market expectations | Capital Expenditure
In the March quarter, capex is anticipated to have risen by 1.3%. The range of estimates is between -1% to 3.5%. A modest upgrade is likely to be made to the 6th estimate of firms' investment plans, from $141bn to around $144bn. Today's report will also include firms' 2nd estimate of capex plans for 2022/23. Given the strength of the 1st estimate (+11%Y/Y), it is likely this momentum will carry through to estimate 2. However, this could be tempered by the developments over recent months including rising inflation and the intensification of ongoing supply issues due to the Ukraine war. My expectation is for a figure of around $125bn for estimate 2.
Given the weakness seen over the second half of 2021, I will be looking at equipment spending, particularly in the non-mining sector, to see if the earlier upswing has re-gained momentum. The wider reopening of the economy will have helped, but supply issues have continued and inflation pressures have risen.