News | 26 May 2022

Australia’s CAPEX falters in Q1, with cost inflation to test activity

Thomas Rudgley

Thomas Rudgley

Economist

George street, Sydney

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.

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