News | 26 May 2022
Australia’s CAPEX falters in Q1, with cost inflation to test activity
Thomas Rudgley
Economist, Macro Consulting
- Private new capital expenditure fell 0.3% q/q in Q1 2022, led lower by a fall in buildings and structures investment. The weak result is in part due to the impact of Omicron on labour availability, and the postponement of construction activity in flood affected areas. Machinery & equipment volumes rose in the quarter.
- Expectations for FY23 remain strong across mining and non-mining sectors. Today’s data provide another bullish read for buildings and structures spending, while machinery & equipment spending is also expected to lift – a sharp departure from the fall predicted in the February data. However, the exacerbation of supply side issues stemming from the war in Ukraine and lockdowns in China means a good deal of the increase in expectations is due to cost inflation, which will dampen the impetus to growth from investment activity.
The March quarter was challenging for private business investment. Buildings & structures spending fell 1.7% q/q, partly offset by a 1.2% q/q rise in machinery & equipment expenditure. The rapid spread of Omicron cases left many firms short-handed as staff were forced to isolate or take sick leave. Flooding in New South Wales and Queensland will have also weighed on construction activity. Machinery & equipment spending is less affected by these disruptions as a high share of equipment is imported.
Adjusting for firms’ historic realisation ratios, firms are providing a strong read on expenditure over FY23, with growth of 9.8% now expected. Buildings and structures investment is expected to drive growth, but machinery & equipment spending is now also expected to increase – a turnaround from the last read three months ago. However, the strength in expenditure plans will largely be due to higher inflation expectations, with the war in Ukraine lifting oil prices, and extended lockdowns in China worsening supply chain woes. We expect the response of mining investment to higher commodity prices will be limited.
Meet the team
Sean Langcake
Head of Macroeconomic Forecasting, OE Australia
+61 2 8458 4236
Sean Langcake
Head of Macroeconomic Forecasting, OE Australia
Sydney, Australia
Sean Langcake is Head of Macroeconomic Forecasting at Oxford Economics Australia where he is responsible for macro forecasting and analytical content. Sean is a regular contributor in the national media on Australian and global economic trends and policy issues.
Prior to joining Oxford Economics, Sean worked in a wide variety of roles at the Reserve Bank of Australia, largely focussing on forecasting and macroeconomic modelling. Sean holds a Masters Degree in Economics from the University of New South Wales, as well as a first class Honours degree in Economics and a Bachelor of International Studies from the University of Adelaide.
Thomas Rudgley
Economist, Macro Consulting
+61 (0) 2 8458 4223
Thomas Rudgley
Economist, Macro Consulting
New York, United States
Thomas is part of Oxford Economics’ Macroeconomics Consulting team based in New York. He produces scenario analysis, forecasts, and data visualisations across a range of industries to help clients navigate the tumultuous economic environment.
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