Australian companies, especially those outside the resources sector, have again lifted spending plans for the coming financial year.
In fact, the 11.3% rise in expected spending this financial year is the strongest for the 4th estimate in 19 years.
That’s despite a dip in the September quarter when investment eased 0.5% to $29.5 billion, according to Australian Bureau of Statistics data released on Thursday.
That was well under market forecasts for a 1.0% gain, but that that much better than it looks because the previous quarter was revised sharply higher to show a fall of 0.9% from the first reported 2.5% drop
Importantly, spending on equipment, plant, and machinery grew 2.2% in the three months to September and will prove a boost to economic growth in the third quarter when the National Accounts for the quarter are released next Wednesday.
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% fall in investment on buildings and structures.
Investment in other selected industries — namely services, utilities, telcos and the like — was relatively unchanged while investment at manufacturers rose by 2.7%.
Like mining, spending on plant, machinery, and equipment in these sectors also increased during the quarter.
The National Accounts next week could show GDP rise by between 0.5% and a solid 1% – the data on the current account, wages/salaries sales and government financing transactions next week will determine the final outcome.
The latest estimate (the 4th for the current 2018-19 financial year) came in at $114.1 billion, 11.3% higher than the previous estimate and above most analysts’ expectations of around $104 billion to $112 billion. It was also 4% above the same estimate for the 2017-18 financial year.
The ABS 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, but not all investment. Seeing health and the NDIS have been big areas of spending and employment, there could be a considerable under estimate.
The survey also finds it hard to capture spending on software and cloud investment.
A standout was the solid rise in manufacturing investment and investment by power utilities with investment up no less than 75% per cent in the year to June, compared to the previous 12 months, driven by a boom in the renewables sector.
Also strong have been health, tourism and education, with the latter two benefiting from an influx of Chinese visitors and students.
The 11.3% growth in spending didn’t include yesterday’s $3.5 billion plan from Rio Tinto to build a new iron ore mine in WA called Koodaideri (see separate story). Rio Tinto also approved a US$44 million pre-feasibility study into a second stage expansion of the operation in a few years’ time.
Expected 2018-19 spending for Australia’s non-mining sectors rose to $80.7 billion, up more than 6% on a year ago
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.
Expected investment by manufacturers was revised up to $9.725 billion, 13.2% higher than in the June quarter and 7.4% from the fourth estimate offered for the 2017-18 financial year.
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. But the new Rio iron ore mine will push that figure higher.
