The September quarter downturn in business investment shouldn’t have been a big surprise – after all the impact of the COVID-19 pandemic and lockdowns has been extremely destabilising, especially to business and consumer confidence – even though both have recovered somewhat in the past couple of months.
But the 3% dip in new private capital spending was par for the course, especially with the fall uniform across the economy.
According to the Australian Bureau of Statistics on Thursday new capital spending in the three months to September fell to $25.9 billion.
That down by 13.8% over the past year to around $110.25 billion and probably heading under the $100 billion level around the March or June quarters of 2021.
Spending on buildings and structures fell 15% while spending on plant and equipment dropped just on 14% over the year.
It was the lowest quarterly result since March 2007 which occurred just as the mining sector started to ramp up spending in response to sharp rises in iron ore and oil prices.
The ABS said that spending on buildings and structures fell 3.7% while there was a 2.2% drop in expenditure on equipment and plant.
The data for the quarter chimes with a similar fall in the value of construction work done in the three months to the end of September.
The ABS said that fell 2.6% to $51.18 billion, with the value of building work done down 2% to $28.97 billion and the value of engineering work done dropping 3.3% to $22.20 billion.
Every state and territory was down through the quarter with the biggest fall, of 7.7%, recorded in Victoria. Capex in Victoria is now down by 23.7% over the past year (The September quarter is when the second wave lockdowns in the state were at their most extensive).
NSW capex fell 3.7% to be 21% lower over the year while in WA, spending there edged down by 1.4% as the mini boom in new iron ore capacity, extensions to lithium operations and new spending on nickel, copper and especially gold is holding up in the face of the slowdown.
Despite the fall, WA investment rose 4.8% in the year to September.
Future investment intentions by business remain muted, despite hundreds of billions of dollars in stimulus and record low-interest rates.
In its fourth estimate for 2020-21, the bureau said private expectations were now at $104.98 billion. That was up 6.3% on the third estimate issued three months ago.
If this is realised, it would be a 10.1% fall on the $116.8 billion spent in 2019-20.
The recent widening of eligibility for the new accelerated investment allowances might help trigger an uptick in confidence and then spending.
This series from the ABS doesn’t capture all private spending, but the sectors missed such parts of small business, have been hard hit by the downturn and there’s a chance if their data was included, the falls could to a little worse.
But buried in the 4th estimate was a sliver of good news. Business spending on equipment, plant and machinery is projected to rise more than 16% to $45.206 billion. That’s still lower than the more than $54 billion spent in 2019-20.
There was also a near 14% rise in manufacturing investment to more than $9.3 billion. Spending in other industries is projected to rise more than 14% to just over $59 billion.