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Australian business investment fell sharply in the June quarter, bucking expectations for a modest increase.
However, expected investment in the current financial year was revised sharply higher, suggesting the weakness is unlikely to last in the coming quarters.
According to the Australian Bureau of Statistics, private-sector capital expenditure (CAPEX) fell by 2.5% to $29.1 billion over the quarter in seasonally adjusted chain volume terms, missing forecasts for an increase of 0.6%.
From a year earlier, total CAPEX increased by just 0.4%.
Helping to soften the quarterly result, CAPEX in the March quarter of this year — previously reported as a gain of 0.4% — was revised higher to show an increase of 1.2%.
Expenditure on building and structures made up the vast bulk of the decline, sliding 3.9% in volume terms to $15.4 billion. That was down 4.7% on the same quarter a year earlier.
“Mining fell 10.5%, Manufacturing fell 0.9% and other selected industries rose 1.4% in seasonally adjusted terms,” the ABS said.
Investment on equipment, plant and machinery — a direct GDP input — also declined, falling 0.9% to $13.7 billion, an outcome that will detract slightly from economic growth during the quarter.
CAPEX on equipment, plant and machinery at other selected industries — largely services — drove the decline, sliding 2.9%, offsetting improvements of 5.6% and 3.9% respectively for mining and manufacturing.
From the June quarter of 2017, expenditure in this category still increased by a healthy 6.9%.
However, while actual expenditure was disappointing, expectations for the future were brighter with the third estimate for CAPEX in the 2018/19 financial year lifting to $102 billion, above the $100.1 billion figure expected.
The increase represented a hefty 16.1% increase from the second estimate offered in the March quarter, but was still down 1.1% on the third estimate offered for the 2017/18 financial year.
“The news on nominal expected CAPEX was better with the upward revision for the 2018/19 from the second estimate of $87.9 billion being larger than normal,” said Paul Dales Chief Australia and New Zealand Economist at Capital Economics.
“But this still implies that actual investment in 2018/19 may be around $110 billion, which would be 7% lower than the outturn in 2017/18.”
In what will be of interest for the Reserve Bank of Australia (RBA) who are banking on investment in non-mining sectors to help bolster economic growth over the next few years, there were some big upward revisions to expected CAPEX in the latest survey.
Investment at other selected industries was revised higher to $61.5 billion, some 14.2% larger than the second estimate offered three months ago. However, from a year ago, the third estimate for 2018/19 was unchanged, casting some doubt as to whether the recent uptrend in investment at services firms will continue over the coming years.
Expected manufacturing CAPEX was also revised sharply higher, lifting to $8.7 billion, some 19.2% higher than the previous estimate. It was also 3.1% higher than the third estimate offered for the 2017/18 financial year.
Estimates tend to be revised higher over time as operating conditions for businesses become more certain.
Combined, total expected non-mining spend for the current financial year stood at $70.1 billion, a reasonable result, but hardly spectacular.
Making up the remainder of the 3rd CAPEX estimate, mining firms indicated that they expect to invest $31.9 billion in the current financial year, up 19% from the second estimate offered three months ago but still 4.2% below the level of the third estimate for 2017/18.
More to follow…