Capital expenditure by Australian companies fell by by 0.5 per cent in the June quarter, missing expectations of a 0.4 per cent gain.

It followed weak construction figures yesterday, which economists said would likely detract from Q2 GDP growth.

But both sets of data were influenced by the ongoing downturn in residential construction, which continues to play out following a multi-year boom in the sector.

Yesterday’s 3.8 per cent fall in construction was driven by declines in building work – both residential and non-residential; which fell by 5.1 per cent and 6.6 per cent respectively.

In addition, data today showed capital expenditure on building work fell by 3.3 per cent – larger than initially forecast.


It’s not all doom and gloom

But there were some green shoots in the capex forecasts – arguably a more important aspect of the quarterly figures than the historical component. Investments in plant and equipment rose by 2.5 per cent.

The latest estimate by companies surveyed for total capital expenditure during the 2019/20 financial year came in $113.4 billion. That is 14.9 per cent higher than the previous forecast just three months prior.

And helping to drive the pickup was an increased appetite for investment in the mining sector. It now expects capex in the 2019/20 financial year to reach $38.1 billion. This is up 17.4 per cent from the previous quarter’s estimate.

It follows a pickup in merger and acquisition (M&A) activity among publicly-traded mining stocks, which accounted for 61 per cent of total ASX M&A activity in the seven months to July.

The brighter outlook for business investments follows a message to corporate Australia from federal Treasurer Josh Frydenberg. Earlier this week he said companies should deploy more capital in business investment, rather than dividend payouts and share buybacks.