Australian private sector capital expenditure rolled over in the June quarter declining by 2.2% to post its weakest outcome since the pandemic. This sharply missed expectations for a 1% rise; however, the investment outlook still looks upbeat with projected spending plans for the 2024/25 financial year rising by 10.3% to $171bn, the highest level in 12 years.
Yesterday it was the construction cycle losing momentum, today it was a similar story for capex. Against an expected rise of 1%, capex declined by 2.2% in Q2; however, an upward revision boosted the lift initially reported in Q1 from 1.0% to 1.9%. Overall, that left capex down marginally by 0.3% for the first half of the year.
The weakness in the June quarter was driven mainly by a 3.8% fall in buildings and structures investment, while equipment, plant and machinery also softened by 0.5%. The last time both capex components declined in the same quarter was 4 years ago following the onset of the pandemic, and 6 years ago if the Covid period is excluded.
The question arising out of today's report is whether this is the start of a turn in the cycle or merely a pullback from the acceleration of the past few years. Capex accelerated coming out of the pandemic rising by more than 30% from the low in Q3 2020 to its peak around $41bn in Q1 2024.
Slowing growth and uncertainty around the outlook suggest capex may unwind further from here. On the other hand, investment intentions (discussed later) still look upbeat in the near term, while factors such as the transition to renewable energy and investment in data centres and technology could be supportive on a longer-term horizon.
Non-mining capex was down 3.6% in the latest quarter, swinging growth through the year from a robust 7.7% to -0.6%. However, as the chart below shows, the overall level of capex remains elevated. Buildings and structures saw a 7.7% contraction (-6.7%Y/Y) and equipment investment declined slightly by -0.2% (4.7%Y/Y).
In the mining sector, capex advanced by 1.5% (2.6%Y/Y) following a 4% fall in Q1. A 2.8% rise in buildings and structures (3.7%Y/Y) more than offset a 2.1% slide in the equipment component (-0.3%Y/Y).
Turning to the investment intentions component of the survey, firms nominated a figure of $170.7bn for their 3rd estimate of the projected capex spend in the 2024/25 financial year. This was an uplift of 10.3% on the previous estimate firms put forward 3 months earlier and 8.8% higher than a year ago. This puts capex on track to rise to a 12-year high this financial year.
Non-mining investment plans were upgraded by 10.4% on estimate 2 to $118b for 2024/25. This came on the back of uplifts to projected spending on equipment (+14.8% to $55bn) and buildings and structures (+7% to $63bn). Mining sector plans were elevated by 9.9% compared to 3 months ago to a figure of $53bn. Upgrades of similar magnitude were made to plans for buildings and structures (+9.8% to $39bn) and equipment (+10.2% to $14bn).
