Australia's December quarter capital expenditure survey is due for release at 11:30am (AEDT) this morning. Today's report will provide a partial estimate of business investment ahead of next week's Q4 national accounts. Capex lost momentum over 2022 but is expected to see a rebound with a modest rise in the December quarter. Forward-looking investment plans may remain upbeat but uncertainty over the economic outlook poses risks.
Since rebounding to pre-pandemic levels in mid-2021, capex has levelled out and posted a weak result in the September quarter (-0.9%). Over the past year, capex lifted by 1.7%.
In the September quarter, spending on buildings and structures increased by 0.5% (1.4%Y/Y), rebounding from supply and weather-related disruptions in previous quarters; however, equipment spending fell by 1.6% (2.2%Y/Y).
Relative to their respective pre-pandemic levels, equipment spending (6.9%) is substantially more elevated than buildings and structures (0.6%), due in part to tax incentives for the acquisition of new assets in addition to accommodative financing conditions.
Capex in the non-mining sector increased by 1.4% in the quarter to be up 1.2% on pre-pandemic levels, with equipment spending the driver (6.7%). Mining sector capex declined by 5.1% for the quarter to remain around the subdued levels of recent years.
Forward-looking capex intentions for 2022/23 were increased to their highest level in 8 years. Estimate 4 was upgraded by 5.6% to $156bn, implying capex was on track to rise by around 12% on the previous financial year. The implied year-to-year rise in non-mining capex was 12.9% and 11% in the mining sector.
Market expectations | Capital Expenditure
Capex is expected to have risen by 1.3% in the December quarter, with estimates in the Bloomberg survey ranging from -3% to 4%. Today's survey will also include the 5th estimate of capex plans for 2022/23 and the 1st estimate for the 2023/24 financial year. For estimate 5, a modest upgrade in capex plans to around $160bn looks likely, based on the average increase on estimate 4 over the history of the series. Investment plans for 2023/24 could potentially see an upgrade of around 5-10% from the previous year to $123-$128bn, albeit with a large degree of uncertainty.
What to watch | Capital Expenditure
Much of the focus will be on the forward-looking capex plans and whether the upbeat outlook from firms still remains intact. The pandemic led to a period of deferred investment, with firms then left playing catch up due to the strength of the economic recovery. But the year ahead brings uncertainty with expectations for the global and domestic economies to slow while inflation is anticipated to take time to come down from its elevated pace.
