Australian Capex stagnates preceding coronavirus demand hit
(25 February 2020 - Australia) Australian business capital expenditure (capex) for Q4 2019 registered a disappointing 2.8 percent seasonally adjusted decline in volumes in the three months to December 2020 according to the latest Australian Bureau of Statistics (ABS) data.
BHP has committed to US$8 billion capex this year with autonomous trucks accounting for A$800 million of that total. Fortescue announced a material increase in capex to A$852 million for H1 2020 from A$531 million in H1 2019. Telstra capex fell to A$1.5 billion from A$2.5 billion in the previous corresponding period while Wesfarmers reported a decline in capex to A$455 million from $459 million. Coles reduced its first half capital expenditure to A$142 million from A$391 million matched by Woolworths decreasing capex commitments from $926 million to A$731 million.
The protracted economic demand shock of the coronavirus is building concerns that a global growth contraction will likely see a swift response by central banks and governments through direct monetary and fiscal stimulus. Expectations are for the economic damage from the coronavirus to be temporary and although the contagion may not inflict long term damage to global economic growth if the World Health Organization (WHO) starts lowering the assessment of the coronavirus pandemic, markets remain cautious as cases multiply in South Korea, Iran and Italy in particular.
A 5.8 percent decrease year-on-year was also confirmed after the sharp quarterly decline missed market expectations of a 0.5 percent by a significant margin. The Reserve Bank of Australia (RBA) has forecast total real business investment to rise by 9.3 percent in the year to Q4 2020, followed by a 5.3 percent increase in the year to Q4 2021. Westpac economists including Bill Evans forecast total real business investment to expand by 1.6 percent in financial 2021.
Asset and equipment finance volumes are predicted to expand by 8.1 percent in 2020 according to direct interviews with 1,291 Australian CFOs and corporate treasurers as part of East & Partners annual Asset & Equipment Finance program.
CBA economist Gareth Aird projects capex will mount a turnaround of six percent in the next financial year including a three percent increase in non-mining investment and a robust 12 percent jump in mining capex.
"Business demand for credit is soft, the most recent ABS forward looking intentions for non-mining capex are weak and a range of private surveys are pointing to non-mining investment remaining sluggish in the near term" Mr Aird said.
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