Companies are holding off from investing in capital expenditure (capex) this year, a worrying sign for the global economy.
According to Standard & Poor’s Global Corporate Capital Expenditure Survey 2013, the global capex cycle is stalling. The research found that capex growth for a sample of non-financial companies slowed to 6% in real terms in 2012, down from 8% in 2011.
Meanwhile, capex growth is set to fall by 2% in 2013 and by 5% in 2014.
“The capex recovery appears to be ending before it has really begun,” the report said.
Over the past decade, the energy and materials sectors have accounted for 62% of capex worldwide. But S&P warns that if the global commodity ‘super cycle’ is fading, global capex will struggle to grow meaningfully in the near term. The report said: “Sharp cutbacks in the materials sector are a key factor in the projected slowdown in capex for 2013 and 2014.”
While North America has seen its share of global capex recover from a low of 24% in 2009 to a projected 36% share in 2013, emerging markets are showing signs of capex fatigue.
The report found that Latin America appears to be suffering from a crisis of confidence, with the weakest projected capex growth across all regions in 2013, while Asia-Pacific is also showing signs of capex strain.
“Current estimates for Australia point to real capex declines of 12% in 2013 and more than 20% in 2014. These mining-led declines exceed those seen [during] the global financial crisis of 2007-09,” said the report.
Chinese mainland non-financial corporates are currently forecast to cut capex by 4% in real terms in 2013 and by 6% in 2014.
The report concluded: “Drivers of global capex remain broadly supportive, particularly cash balances and the age of the capital stock, but profit margin pressures and the general lack of confidence are inhibitors.
“In our view, capex has the potential to reinforce a well-established recovery but is unlikely to trigger recovery in itself. A downturn in commodity-linked investment is likely to severely hinder a broader recovery.”
Sally Percy is editor of The Treasurer