The expected COVID-19-driven plunge in business investment emerged yesterday in June quarter data on private capex from the Australian Bureau of Statistics.
The ABS revealed a 5.9% slide in investment spending in the June quarter to its lowest level since before the global financial crisis more than a decade ago.
The data will slide into the national accounts for the June quarter and 2019-20 to be released next Wednesday with a forecast fall in GDP of up to 7% (quarter on quarter).
The 5.9% slide was a bit better than forecast by the market because mining investment – mostly in the iron ore industry – held up thanks to continued spending by Fortescue Metals, BHP, and Rio Tinto on brownfields expansion projects in the Pilbara.
Mining investment eased 1.2% compared to a 4.5% fall for manufacturing and an 8.4% drop fall in other industries.
Looking forward, the third estimate for 2020-21 was lifted by 8.9% to $98 billion, that’s 15.5% or $18.2 billion drop on private capex through 2019-20 and more than 12% lower than the third estimate of capex for the 2019-20 year.
It is however up still up by 8.9% from the second estimate for the current 2020-21 financial year issued three months ago.
The importance of the continued spend by mining companies cannot be overstated – the third estimate for 2020-21 of $38.2 billion is higher than the 7th estimate for the June 30 year of $35.1 billion.
But economists point out that these early estimates usually eased over time, especially when business conditions were bleak because companies lose heart and need to curb spending to maintain as much liquidity as possible.
The Bureau reported spending on buildings fell by 4.4% during the quarter while spending on plant and equipment dropped by 7.6%
That’s the weakest quarterly result since March 2016 and aw investment fall 11.5% in the 2019-20 financial year.
The fall saw private capex drop to $26.1 billion for the quarter, the lowest result since the September 2007 quarter.
The June quarter slide means that capex has fallen for the past 18 months (six quarters in a row) and is now down 13.4% which takes it back to the level of the September, 2007 quarter.
Capex is also down 36% from the mining boom peak in September 2014.
