Capital expenditure by Australian firms slowed in the September quarter (0.6%), coming in below expectations (0.8%) to post its softest outturn since the middle of last year. The winding up of Covid-related tax incentives for equipment purchases at the end of the 2022/23 financial year and weakness in commercial construction were the key factors. This was attenuated by the strongest quarterly rise in mining sector capex (5.6%) in 11 years. Investment plans for 2023/24 remain resilient to economic headwinds, upgraded to a decade high ($171bn) in the latest estimate.
Private sector capex has risen strongly over recent quarters, but the momentum slowed in Q3. This was driven by a moderation in both equipment (0.5%) and buildings and structures (0.7%).
Equipment spending looks to have been frontloaded into the first half of the year (6.3%) before temporary full expensing - a measure introduced to support the economic recovery from the pandemic that allowed businesses to fully write off the cost of eligible assets in their first year - wound down at the end of the financial year.
Non-residential construction was also strong in the first half of the year (7.7%) but then weakened in Q3, consistent with yesterday's construction work report.
These dynamics led to non-mining sector capex declining by 1.3% in the quarter, its weakest outturn in 3 years, reflecting falls in equipment (-0.5%) and buildings and structures (-2.2%). By contrast, mining sector capex accelerated by 5.6% to post its strongest rise since Q2 2012. This came on the back of gains in equipment (5.9%) and buildings and structures (5.4%).
In volume terms, the level of non-mining capex remains elevated, up 12.1% on pre-pandemic levels. Mining sector capex has risen 15% through the year to be near the levels seen ahead of the investment boom in the sector more than a decade ago.
Firms' investment plans have remained resilient to headwinds to the growth outlook in Australia and offshore. The 4th estimate of expected capex in 2023/24 was upgraded by 8.5% on the previous estimate put forward 3 months ago, rising to a figure of $171bn - a high back to 2013/14. This estimate is also up by 10.3% on a year-to-year basis. But these estimates are in nominal terms, so include the impact of higher inflation.
Non-mining sector investment plans were revised up by a strong 9.2% ($121bn), driven by a 12.5% upgrade in estimated spending on equipment ($57bn), with buildings and structures rising by 6.4% ($64bn).
For the mining sector, 2023/24 investment plans lifted by 6.9% compared with estimate 3 to stand at $51bn (up 8.5% year-to-year). A 6.6% upgrade came through in buildings and structures spending ($37) while equipment spending was seen 8% higher ($14bn).