Coronavirus: Investors run scared as infection shakes markets

The extreme uncertainty created by the COVID-19 crisis has led corporate Australia to slash investment plans for this financial year and the next.

The survey showed that three quarters of firms have accessed some form of emergency government support. Picture: istock

The extreme uncertainty created by the COVID-19 crisis has led corporate Australia to slash investment plans for this financial year and the next, foreshadowing one of the largest back-to-back falls in annual business spending in recent decades.

An Australian Bureau of Statistics report revealed firms revised down sharply their capital expenditure estimates for this financial year by 4 per cent, and by 9 per cent for 2020-21.

“Before the pandemic, we had already seen capital shallowing, and such a large contraction will restrain the economic recovery and further undermine productivity over an extended period,” ANZ economist Catherine Birch said.

Accounting for historical translations from plans to actual investments suggested investment would fall 6.5 per cent in 2019-20 and a further 5.4 per cent in 2020-21, NAB economist Kaixin Owyong said.

The downgrade to investment plans for next financial year “was the first downgrade at this early stage of the planning cycle since the 1990s recession,” Ms Owyong said.

“Consecutive falls of this magnitude would exceed the early 1980s recession, but would be surpassed by the early 1990s recession and the more recent end of the mining boom.”

Actual quarterly real capital expenditure declined by a shallower than expected 1.6 per cent over the first three months of the year to just shy of $28bn, seasonally adjusted data from the ABS showed.

Of that, spending on buildings and structures declined 1.1 per cent to $14.7bn over the quarter, while investment in equipment, plant and machinery fell 2.3 per cent.

While the March quarter figures suggested a weaker than expected drag on GDP growth in next Wednesday’s national accounts, economists focused on early evidence that Australian firms will delay and cancel planned investments in response to the pandemic and associated economic slump.

So close to the end of this financial year, the ABS survey suggested business spending could plummet 16 per cent over the June quarter, which is expected to bear the brunt of the health crisis and associated shutdowns.

Non-mining firms now expect to reduce capex by 8 per cent in 2019-20, and by 17 per cent in 2020-21.

Capex in the resources sector remains a relatively bright spot, but is now expected to be essentially flat in 2019-20, but substantially down from an estimated rise of 20 per cent at the beginning of the financial year.

And while mining firms still plan to boost spending by 10 per cent next financial year, it was just over a third of their previous estimate.

“The data underscore the importance of restoring confidence and supporting business investment for the recovery to be sustained,” Ms Owyong said.