Australia's March quarter capital expenditure survey is due to be published by the ABS this morning (11:30 AEST). The report provides an estimate of quarterly business investment - an input for economic growth calculations - as well as surveying firms on their spending plans. A 1% rise in quarterly capex is expected, while the resilience of investment plans will be tested by slower growth and weak confidence.
Capex, a partial indicator of business investment, lifted by 2.2% (in inflation-adjusted terms) in the December quarter to be up by 3.6% through the year. This extended its strong rebound coming out of the pandemic, with capex 7.1% higher than at the end of 2019.
Real spending on buildings and structures posted a 3.6% rise in Q4 for an overall rise of 6% in the second half of the year. Equipment spending was a modest 0.6% higher in Q4 and has largely plateaued over recent quarters; however, this follows a strong upswing out of the pandemic that was supported by stimulus measures and the recovery in demand.
Non-mining sector capex expanded by 2.8% in Q4 and was 5.6% higher than its pre-pandemic level. Capex in the mining sector remains around its subdued levels from recent years, despite the tailwinds from elevated commodity prices.
Forward-looking investment plans (in nominal terms) were upgraded by 2.2%, pointing to a total spend of around $159bn in 2022/23, according to the 5th estimate. That puts capex on track for a 12.6% rise compared to 2021/22; however, this uplift includes an inflationary component. Year-ahead plans for 2023/24 were a notional $130bn.
Market expectations | Capital Expenditure
The median estimate is for capex to rise by 1.0% in the March quarter, with forecasts ranging from -0.5% to 2.5%. Today's survey will also include revised estimates of investment plans for 2022/23 (estimate 6) and 2023/24 (estimate 2).
Based on the history of the survey, estimate 6 is likely to be revised around 1% higher to a figure of around $161bn for 2022/23. There is considerably more uncertainty around estimate 2 for 2023/24. In the past two years, the upgrades from estimate 1 have been robust at around 15%, though these upgrades came amid strong economic conditions and rising inflation. I anticipate a more conservative uplift on this occasion of around 10%, equating to a forecast of around $144bn for 2023/24.
What to watch | Capital Expenditure
The forward-looking investment plans component tends to gain most of the attention from this release and that is likely to be the case again today. That said, the capex outcome will be a key input shaping expectations for Q1 GDP. Regarding investment plans, the NAB Business Survey over recent months has been reporting a divergence between conditions - remaining robust - and confidence - falling to weak levels. To date, investment plans have been resilient to slower growth, both domestically and offshore. The key question is whether this resilience in the investment outlook holds up.
