Australia’s capital expenditure (capex) slump was thought to be coming to an end as investment in the mining sector reverted back to its long-term mean after a spike early in the decade. Total investment had begun to grow again, driven by investment in the services sector. However, contractions in recent quarters have become the norm.
According to the latest ABS figures, seasonally-adjusted private sector capex in the September quarter contracted by 0.2%, a modest improvement on the June quarter’s figure of -0.6% but less than the flat result which had been expected. On a year-on-year basis, total capex contracted by 1.3% after recording an annual rate of -1.0% in the June quarter.
ANZ senior economist Felicity Emmett said, “The weakness was concentrated in non-mining spending, while mining capex rose at it fastest pace since 2012. While miners remain relatively upbeat about the outlook, non-mining firms downgraded their investment plans and now expect to cut investment in 2019-2020.”
Local financial markets reacted by sending bond yields a little lower while the likelihood of the RBA loosening monetary policy further remained largely unchanged. By the end of the Australian trading day, 3-year and 10-year Treasury bond yields each shed 2bps to 0.63% and 1.00% respectively while the 20-year yield finished 1bp lower at 1.41%.