We estimate that private investment fell by a modest 1.2% q/q in Q3, and firms’ expectations of future capital expenditure suggest we may be near the trough in investment.
Capital investment may be approaching its trough
- We estimate that private investment fell by a modest 1.2% q/q in Q3, and firms’ expectations of future capital expenditure suggest we may be near the trough in investment.
- Today’s private capital expenditure survey showed a 3.0% q/q drop in overall private capex. Private capex was dampened by a 3.7% fall in non-dwellings building investment, but building work done data, released yesterday, tend to be a better guide to non-residential construction and showed a larger 6.4% q/q decline.
- The key new information from the data released today was that machinery and equipment investment fell by 2.2% q/q. That’s less negative than we had assumed so on that basis, we are revising up our estimate of private investment. Adding in the small 1% decline in dwellings investment from yesterday’s data we now estimate that private investment fell -1.2%% q/q in the third quarter.
- Mining investment rose in three of the last four quarters, supported by stronger investment in metal ore extraction given high prices in the industry. While iron ore prices remained high in Q4 it appears that overall mining investment fell in Q3. Total mining capex fell by 3.1% in Q3 with metal ore capex broadly stable and oil and gas capital expenditure reaching continuing its decline. (See Chart 1.)
- Looking ahead, firms’ expectations of future capital investment were revised up in the survey. The 4th estimate of firms’ total nominal capital expenditure in 2020/2021 was revised up by 6.4% from the 3rd estimate. That’s bigger than the typical 5.5% revision between the third and fourth estimate. Admittedly, the latest projection is still consistent with a 5.7% annual fall in total nominal capital investment in 2020/21. But the stronger-than-usual upward revision suggests that investment is nearing its trough.
Chart 1: Real Capital Expenditure ($bn, Seas. Adj.)
Sources: CEIC, Capital Economics
Table 1: Private New Capital Expenditure (Volumes)
Buildings & Structures
Machinery & Equipment
Expected Values ($bn)
Sources: Refinitiv, ABS
Ben Udy, Australia & New Zealand Economist, email@example.com