CAPEX likely peaked on current plans
March quarter Capex growth -0.1%, with spending plans consistent with weak growth continuing into FY2025/26. After adjusting for prices, spending plans point to an almost flat outcome in FY2025/26. Capex: -0.1%qtr, -0.5%yr. Capex Plans: Adjusted Est 6 for 2024/25 at $189.0bn vs Adjusted Est 5 $188.0bn; Adjusted Est 2 for 2025/26 at $194.7bn.
Australian business capex, March quarter (actual spending)
Private sector new capital expenditure surprised on the downside showing a 0.1%qtr decline in the March quarter. The reported growth rate was well below our and median market expectations of a 0.5%qtr increase. It followed a disappointing result of -0.2%qtr growth in the December quarter, which in today’s release was revised up to a more palatable +0.2%qtr.
The mining sector capex jumped 1.9%qtr, recording the best result since the September quarter 2023 and bringing the annual pace of growth back above 2%yr after two quarters at around -5%yr. Growth in this sector investment was robust across major categories, with machinery and equipment, and buildings and structures reporting gains of 2.4%qtr and 1.7%qtr respectively. We have highlighted before that subdued investment growth in this sector is hardly sufficient to maintain depreciating capital stock. The recent pickup signals renewed interest in maintaining mining capacity, likely linked to the fact that prices of certain commodities have been higher for some time.
The non-mining sector was the major source of disappointment, recording a 0.9%qtr drop in new capex. Among its major categories, machinery and equipment was down 2%, the worst result since 2020, as the post-pandemic boost seems to have run its course, and trend has shifted back down in the last couple of quarters towards the relatively stable pre-pandemic levels. Meanwhile, investment in buildings and structures maintained the upward trend seen in the last few quarters, but only just, with a 0.4%qtr rise, which was about a half of the average rate in the prior four quarters.
Non-mining industries
Looking at the detail, it is clear that industries at the coalface of the consumer-led slow down continue to pull back on their investment plans to protect margins and cashflow. Capex in these industries has fallen by almost 7.0% over the past seven consecutive quarters and is down almost 2.0%yr in the March quarter. This includes industries such as accommodation and food services, recreational services and retail.
On the other hand, businesses and industries tied to the renewables roll out (for further information on construction work done in this area see here), the emergence of new technology and the building of data centres, and the construction needs of a larger population have all increased their capex. This has masked over the weakness seen in the more cyclical industries.
Capex in these structurally driven industries was 5.3%yr higher in the March quarter, but growth has moderated in recent quarters. If capex growth in these industries (electricity generation, information and telecommunications, and construction) continues to moderate (but remain elevated), without a turnaround in capex outcomes and intentions elsewhere, investment outcomes are likely to be very soft going forward. Concerningly, this is consistent with today’s capex expectations data, which suggests that in FY2025-26 non-mining capex will barely grow (more details below).
Capex spending plans
As usual, the capex data release contained not only the latest actuals, but also capex spending plans for this and next financial years, which provide a good indication for how investment spending is likely to evolve in the future. The spending plans are usually downwardly biased, as companies typically are cautious about their future capacity to invest. Over the course of the year, they update their plans by incorporating more data on their actual capex spending. Usually that has a tendency to increase expected capex for the year higher. We apply plan-to-actuals ratios from recent years to get the best adjusted estimates for the likely capex growth.
Given the increased uncertainty about the global economic outlook since President Trump’s inauguration in January, we suspected that capex plans might reflect an element of additional cautiousness among businesses inclined to wait and see how the global trade policy evolves. However, there seems to be little evidence of that effect in the near-term investment plans. The revised capex estimate for FY2024/25 came in at $187.6bn, a touch above our expectations. Given the downward bias in this estimate in recent years, we think that capex this financial year might turn out to be $189.0bn, $1bn higher than we predicted three months ago. We think that $53.4bn are likely to be in the mining sector, with the remaining $135.6bn in non-mining. The estimate represents 3.9%yr increase vs FY2023-24, the lowest growth rate in four years, but broadly similar to the pre-pandemic results in FY 2018-19 and 2017-18.
The first estimate of the capex plans for next financial year released three months ago implied that subdued capex growth will continue into next financial year, and today’s revised estimate reinforced that narrative. The Estimate 2 was $155.9bn only 0.7% higher compared to equivalent estimate released at the same time a year ago. We think that as the economy gathers pace, global trade policy tensions calm down and the trade flows begin to adjust, businesses plans will adjust higher in the following revisions, albeit only minimally. We predict $194.7bn of capex spending in FY2025-26, which represents a further growth slowdown to 3%yr.
Business plans are provided on a nominal basis and price effects can have a significant impact. While capex deflator growth generally followed a downward trend in recent quarters, broadly mimicking the path of consumer price inflation, in the March quarter it jumped back up from 2.5%yr to 3.1%yr as machinery and equipment prices rose 2.7%qtr in a single quarter. We suspect that a surge in prices might be linked to higher global orders and frontrunning of imports into the US ahead of the expected increase in tariffs. If this is true, capex price growth is likely to normalize from next quarter, and we forecast that it will hit annual growth rates of 2.9%yr and 2.5%yr this financial year and next. They would leave the real capex growth at 1.0%yr and 0.6%yr respectively, very subdued growth rates by historical standards.
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Australia and NZ Weekly 2 June 2025
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