A strong capital expenditure report for the June quarter confirms that Australian business investment continues to defy slower economic growth and rising interest rates. Meanwhile, year-ahead investment plans were upgraded sharply from the previous set of estimates, despite uncertainty clouding the economic outlook.
Capex advanced by 2.8% in the June quarter - well above the 1% rise expected - to be up by 10.8% through the year. This follows a 3.7% lift in the March quarter, this outturn revised up from a 2.4% rise initially reported by the ABS. The topline details were a 3.5% expansion in buildings and structures and a 1.9% lift from equipment-related capex.
Driving the uplift in capex has been the non-mining sector, which has seen a 14.2% rise come through over the past year; despite headwinds from slowing economic growth and tighter financing conditions, firms are investing - this partly a response to supply-demand imbalances that emerged through the pandemic. By contrast, mining sector capex is up 2.7% year-on-year, the earlier surge in commodity prices coming out of the pandemic having little effect by way of spurring investment.
In the non-mining sector, buildings and structures lifted by a further 3.5% in the quarter to be up 15% through the year; equipment was 1.9% higher in the quarter and has risen by 6.4% in year-ended terms.
Some of this upturn reflects a catch-up from the pandemic when planned spending was shelved; eased capacity constraints in the construction sector and in global supply chains (notably affecting new vehicles) have supported the upturn. In today's release, the ABS highlighted that many firms have likely brought forward capex spending ahead of tax incentives ceasing at the end of the 2022/23 financial year. Rising investment in renewable energy projects has also been a factor in the capex cycle moving counter to the broader economic climate.
Forward-looking investment plans for the 2023/24 year remain resilient to current headwinds and uncertainty over the economic outlook, the latter cited as weighing on measures of business confidence. Estimate 3 of firms' investment plans for 2023/24 came in at $157.8bn (its highest since 2014/15), representing an upgrade of 14.5% on plans from three months ago, and 7.1% above the corresponding estimate for plans in 2022/23. This latest estimate trials total capex spending by firms in 2022/23 ($165.1bn) by 4.4% at this stage.
Looking further into the details, non-mining investment plans were lifted by 16.5% on estimate 2 to $110.6bn (tracking 8.4% higher on a year-to-year basis), with mining investment plans advancing 10.1% to $47.3bn (up 4% year-to-year). These estimates partly reflect inflationary effects; however, the upturn in the capex cycle shows there is an underlying imperative among firms to increase investment.
