Capex Divide Grows, Plans Point to a ‘Shaky Handover’
Private capex grew 0.2%qtr and 1.7%yr in the June quarter 2025. Spending plans are consistent with only a very small upgrade in real business investment growth over FY2026 Capex: 0.2%qtr, 1.7%yr. Capex Plans: Unadjusted Est 3 for FY2026 at $174.8bn. Adjusted Est $195.7bn, up from $194.7bn previously.
Private sector new capital expenditure surprised to the downside, showing a 0.2%qtr increase in the June quarter and missing our and consensus estimates of +0.8%qtr. The increase fully offset the negative result (revised down from -0.1%qtr to -0.2%qtr) in the prior quarter: only the second quarterly decline since the pandemic.
Private capex plans suggest that real (or price-adjusted) capex will grow a touch over 1.0%yr in FY2026. Wirth public construction falling by around 5.0% over the past two quarters (see yesterday’s Construction Work Done release) and the shrinking infrastructure pipeline suggesting continued weakness, there is a risk the ‘handover’ from public to private sources of growth is ‘shaky’ leading to an underwhelming recovery in economic activity and a corresponding deterioration in labour market conditions.
Non-mining capex running at two speeds
The non-mining capex rose 0.9%qtr, partly offsetting 1.1%qtr decline in the prior quarter. Buildings and structures were up 1.4%qtr. Ignoring a few setbacks, it managed to maintain a broadly upward trajectory since hitting the trough in 2020, and the latest reading represents a new record high for this series. Meanwhile, the non-mining machinery and equipment capex was also higher, gaining 0.5%qtr. But in contrast to the buildings and structures series, this increase follows an almost-4% decline over the prior two quarters.
As we have previously highlighted, private capex outside of mining continues to track at two speeds. On the one hand, capex continues to grow in those structurally driven industries, including energy generation, and information media and telecommunications, growing by around 35% since the June quarter 2023. In the latter industry, capex grew 22.8%qtr in Q2 on the back of increased investment in data centres. The possible pipeline of investment in energy generation, and in particular renewables, is also at a record level which is likely to sustain capex going forward (see renewables section here).
The question becomes whether we will see a pickup is other more cyclical industries (such as accommodation and food services, recreational services and retail), where private capex has fallen by 5% over the past two years. And if so, whether the pickup would be sufficient to offset the drag from the quickly softening public infrastructure investment pipeline (see here). It is quite possible that it will take time to see a significant rise in consumer spending and a broad-based increase in investment in the more consumer facing industries. The longer it takes, the greater the chance the expected recovery in the real economy underwhelms and the labour market unexpectedly deteriorates.
Mining capex remains soft
The mining sector was the main source of weakness, falling 1.4%qtr. While it followed a 2.0%qtr rise in the prior quarter, it still left annual growth at -1.0%yr giving the impression that a firm post-pandemic recovery has now turned into a plateau. Within mining, both major categories – building and structures, and machinery and equipment – reported decreases, by 1.6%qtr and 0.8%qtr respectively. Although the latter is up by a solid 5.0% on an annual basis, the increase represents a recovery from a temporary dip last year. Looking through that, machinery and equipment capex in the mining sector has grown only marginally since before the pandemic. Given high capital depreciation rates in this sector, the current investment levels might be insufficient to maintain the present capacity levels in the face of gradually weakening global demand for Australia’s key commodities. While demand for coal has proven more resilient so far, in the longer term it faces structural headwinds, as China and other major economies move to cleaner energy sources. Similarly, we have repeatedly highlighted that China, the main destination for Australia’s iron ore, has already reached the ‘peak steel’ levels, suggesting that demand for our number one commodity exports is likely to have peaked and will weaken, particularly given that China is looking to consolidate some of its steel production capacity.
Capex spending plans
The capex data release includes not only current expenditure figures but also business spending plans for this financial year, giving valuable insight into future investment trends. Typically, these plans start out conservative as companies remain cautious about their investment capacity. As the year progresses, businesses revise their plans to reflect actual spending, which tends to push expected capex higher. By applying historical ratios of plans to actuals, we aim to provide the most accurate estimates of likely capex growth.
While previous estimates for FY2026 were consistent with minimal capex growth, the Estimate 3 released today was stronger than we expected, coming in at $174.8bn. That reading represented a 3.1% increase from an equivalent estimate last year, marking a notable improvement from close to 1% growth reported in Estimates 1 and 2. Given how subsequent estimates moved historically in similar situations, we think that eventually the capex should be able to reach $195.7bn this financial year, which represents a small upward revision from our previous forecast. It would be consistent with 3.7%r nominal growth this financial year, very similar to 3.8% reported last year.
Business plans are provided on a nominal basis and price effects might have a significant impact. Capex deflator followed a downward trend up until late last year before rising again in the March quarter to 3.1%yr, likely reflecting higher global demand ahead of the expected increases in the US import tariffs. It eased back down to 2.8%yr in the June quarter, thanks to a decrease in the non-mining capex inflation. We think that capex deflator should continue growing at the more modest pace over the coming quarter, which should leave the annual pace moderating towards 2% this fiscal year. Given our adjusted estimate for capex plans, it implies real capex growth of 1.2%yr – a sluggish outcome from a historical perspective and up only slightly from 0.9%yr recorded in FY2025.
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Australia and NZ Weekly 25 August 2025
Australia and NZ Weekly 25 August 2025
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