CAPEX beats: It looks like Australian companies are finally ready to invest

  • Business investment in Australia fell unexpectedly last quarter, primarily reflecting weaker investment from miners and flat spending from services firms.
  • However, investment in plant, machinery and equipment rose strongly, helping to partially offset weaker spending on buildings and structures. That should limit the expected drop in business investment in Australia’s upcoming Q3 GDP report.
  • Expected investment for the current financial year was revised sharply higher, driven by stronger spending plans from Australia’s non-mining sectors.
  • The result will please policymakers at the RBA who are banking upon stronger non-mining investment to help keep Australian economic growth north of 3% in the coming years.

Australian companies invested less than markets expected in the September quarter but they are building a healthy pipeline of projects that bodes well for overall economic growth in the period ahead.

According to the Australian Bureau of Statistics, private capital expenditure (CAPEX) fell by 0.5% in seasonally adjusted chain volume terms, missing expectations for an increase of 1%. From a year earlier, total CAPEX fell by 0.6%.

Expenditure on buildings and structures slumped by 2.8% during the quarter, dragging on the headline reading. This outcome was largely expected given weakness in Australia’s Q3 Construction Work Done report released earlier this week.

However, spending on plant, equipment and machinery rose strongly, lifting by 2.2%, an outcome that bodes well for Australia’s upcoming Q3 GDP report as it will flow directly into the release.

The CAPEX survey captures around 60% of total business investment, excluding spending from industries such as agriculture, health and education. It therefore captures a majority of investment, but not all investment.

While the drop in CAPEX last quarter suggests it was a weak report, Capital Economics Senior Economist Marcel Thieliant said the detail “wasn’t as bad as the headline suggests”.

“A closer look suggests that it wasn’t all bad,” he said.

The outlook for capital spending for the following months has improved a little.

“Given that firms tend to become more optimistic as the end of the financial year approaches, that figure may eventually rise to around $116.5 billion, which would imply a rather small 1.8% drop compared to the previous financial year.”

And that drop reflects the unwind of Australia’s mining investment boom that began earlier this decade, an outcome that is unlikely to drag on headline business investment in the coming years, especially should commodity prices remain firm.

Over the past year, CAPEX on buildings and structures slumped by 7%, partially offset by a 7.7% lift in spending on equipment, plant and machinery.


By industry, investment by mining firms last quarter fell by 2.7% as a 7.4% lift in spending on plant, equipment and machinery was more than offset by a 5.7% decline in investment on buildings and structures.

CAPEX at other selected industries — namely services — was relatively unchanged while investment at manufacturers rose by 2.7%.

Like mining, CAPEX on plant, machinery and equipment in these sectors also increased during the quarter.

Expected CAPEX for the current financial year also rose strongly, an outcome that will undoubtedly please the Reserve Bank of Australia (RBA) who are banking on stronger investment to help keep Australian economic growth above 3% in the coming years.

The fourth estimate for 2018/19 spend jumped to $114.1 billion, up from the third estimate of $102 billion offered three months ago.

That figure breezed past expectations for a smaller increase to $108.5 billion.


Expected expenditure in 2018/19 for Australia’s non-mining sectors rose to $80.7 billion, above the $80 billion figure that ANZ’s economics team said would be regarded as a strong result.

Within that figure, expected investment at services firms rose to $70.98 billion, some 13.9% higher than the previous estimate offered three months ago. Importantly, it was also 6.8% above the fourth estimate offered for the prior financial year.

Similar trends were seen at manufacturers with expected investment revised up to $9.725 billion, 13.2% higher than that offered in the June quarter. The figure was also up 7.4% from the fourth estimate offered for the 2017/18 financial year.

Those figures will be welcomed by the RBA who stated earlier this month that it expects non-mining business investment to increase.

Partially offsetting the improvement in non-mining industries, expected investment among mining companies continued to fall, coming in at $33.36 billion, down 1.1% from the fourth estimate offered in the prior financial year.

However, the current estimate was still 5.7% higher than that offered three months ago.

Like Thieliant, Sarah Hunter, Chief Australia Economist for BIS Oxford Economics, said there was plenty of positive news to come from the report, especially on the outlook for non-mining investment.

“The survey data confirms the information from the business confidence indicators,” she says.

“Firms remain optimistic about the outlook, are increasingly hitting capacity constraints, and are planning to invest to expand capacity.

“We continue to expect non-mining business investment to be a driver of growth over the next 1-2 years, and are forecasting a 6.6% increase for the current financial year.”