Australian private sector capital expenditure was stronger than expected rising by 2.2% in the December quarter. Buildings and structures spending picked up over the second half of the year as equipment investment slowed. Firms' forward-looking investment plans were upgraded and remain upbeat.
CapEx — Q4 | By the numbers
- Private sector capex increased by 2.2% in the December quarter, double the expected rise (1.1%), after a 0.6% gain in Q3 (upwardly revised from -0.9%). Year-ended growth lifted from 2.5% to 3.6%.
- Equipment, plant and machinery capex expanded by 0.6% in the quarter, partially rebounding from a 1.2% fall in the previous quarter, lifting growth through the year from 2.2% to 3.4%.
- Buildings and structures capex advanced by 3.6% quarter-on-quarter to be up by 3.8% over the year.
- Firms' 5th estimate of capex plans for 2022/23 was $158.7bn, an upgrade of 2.2% on the previous estimate put forward 3 months ago. This implies capex is on track to rise to its highest level in 8 years and increase by 12.6% compared to the previous financial year.
- Year-ahead investment plans for 2023/24 were nominated at $129.7bn, the highest figure put forward for a 1st estimate since 2014/15, also up 11.1% from a year ago.
CapEx — Q4 | The details
In the December quarter, firms' capex (in real terms) increased by 2.2%, rising overall by 2.8% over the back half of the year. This compares with a subdued first half (0.8%). Whereas in the first half of the year, equipment spending was the driving factor for capex, buildings and structures took up the running in the second half, likely improving as weather and supply-related disruptions eased. In the most recent quarter, the spend on buildings and structures expanded by 3.6% while equipment spending lifted modestly by 0.6%.
The rise in Q4 capex was led by the non-mining sector (2.8%), with gains in both buildings and structures (3.9%) and equipment (1.8%). Mining sector capex also increased (0.7%) as buildings and structures (3.1%) more than offset weakness in equipment (-5.2%). However, it remains around the subdued levels of recent years, failing to fire alongside the run-up in commodity prices that accompanied the global recovery from Covid.
Firms' investment plans remain upbeat despite uncertainty over the economic outlook and cost pressures. According to business surveys, capacity constraints also remain a headwind, even if the remedy partly requires a boost in investment.
For 2022/23, investment plans have been increased to around $160bn, representing a 2.2% rise over the past 3 months, which is a touch stronger than the historical average rise from estimates 4 to 5. It also implies a year-to-year rise of 12.6%, putting capex on track for its strongest year since 2014/15, though the increase is boosted by inflationary effects.
Non-mining sector investment plans were lifted by 3.2% to $112bn, driven by a 7.9% upgrade to equipment spending plans ($57.2bn) as buildings and structures plans were revised 1.2% lower ($54.8bn). Mining sector investment plans for 2022/23 were left broadly flat overall at $46.6bn.
At first blush, firms gave an upbeat estimate for capex in the year ahead in 2023/24 at around $130bn, a 9-year high for estimate 1 and 11.1% higher than indicated for 2022/23. Non-mining sector plans came in at $88bn (up 12.9% year to year) and mining plans were $41bn (+7.4%).
CapEx — Q4 | Insights
Capex was solid in the December quarter. Yesterday's construction data, though, reported a weak quarter for non-residential building activity. But the theme over the second half of the year appears to be that non-residential construction improved as weather disruptions faded and supply pressures eased a bit. Equipment spending looks to have pretty moderate implications for growth in Q4. Investment plans remain upbeat, though their strength is boosted by inflationary effects on equipment and building costs.