Australia's capital expenditure report for the June quarter is due at 11:30am (AEST) this morning. The report provides an estimate of private sector business investment and a survey of firms' year-ahead investment plans. Capex has been resilient to rising interest rates and slower growth dynamics in the global economy and in Australia, and this is expected to have remained the case in the June quarter.
Momentum in capex has accelerated after earlier recovering from a period of shelved investment during the pandemic. Following a 3% rise in the December quarter, capex lifted by 2.4% in the March quarter. Over the past year, capex has expanded by 6.3% (in inflation-adjusted terms).
... defying the economic slowdown ...
Rising capex has defied tighter financing conditions stemming from the RBA's rate hiking cycle and slowing economic growth, both domestically and offshore. In Australia, real GDP has moderated to a 2.3% annual pace from 3.1% a year ago. In a backdrop of supply-demand imbalances, firms have lifted capex to respond to capacity constraints. Investment in new technology and renewable energy projects have also been key factors. In the March quarter, equipment spending was up 3.7% to be 5.8% higher through the year, while expenditure on buildings and structures lifted by 1.3%q/q and 6.8% in year-ended terms.
The non-mining sector has led the upturn, rising by more than 8% over the past year. Buildings and structures (11.5%) have been the main impulse, with equipment also advancing (6.3%). Mining sector investment remains in its range from recent years.
... and forward-looking investment plans have shown resilience
An early projection of investment plans for the 2023/24 financial year came in at $137.6bn on estimate 2. This represented an upgrade of 6.4% on the initial estimate, which was also 5% above estimate 2 for 2022/23.
Capex is expected to have lifted further in Q2
The median estimate is for capex to have advanced by a further 1% in the June quarter, around a wide range from -2.4% on the low side to 2% top side. Today's report will also include an updated estimate of firms' investment plans for 2023/24 (est 3) and the final figure for 2022/23 capex.
For estimate 3, the average upgrade over the history of the survey from estimate 2 has been 10-11%. The increase has been a touch stronger than this over the past couple of years. Using this as a guide, a 12% uplift points to a figure of around $154bn for estimate 3, assuming sentiment towards the capex outlook has not deteriorated in recent months. Actual capex for 2022/23 spending is likely to come in around $164bn, allowing for a 1% upgrade from estimate 6.