Global business spending on capital dropped sharply last year and could fall to 2006 levels by 2017, a major ratings agency said today.
Spending on physical assets such as property and equipment – known as capital expenditure or simply capex – dropped 10 per cent last year, according to estimates from Standard and Poor’s. Most of it is due to falling investment in the energy and commodity sectors, but other sectors are also expected to rein in spending.
S&P said recent cuts in capex had been “remarkable” and estimates global oil and gas capex dropped 24 per cent last year and will fall a further 15 per cent this year.
Metals and mining capex sank 22 per cent last year and is expected to fall 20 per cent this year.
S&P believes total global capex will dip four per cent this year and two per cent in 2017 as a result. If these forecasts are realised, global capex will have fallen, in inflation-adjusted terms, to 2006 levels.
Global energy capex accounted for one third of total corporate capex in 2014. Dramatic cuts seen since then and expected over the next two years are likely to take this share down to 25 per cent in 2017.
Some sectors, such as IT, consumer discretionary (which includes cars and media) and health care are expected to keep investing. But even excluding energy and materials, capex is projected to grow only two per cent this year.
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Standard and Poor’s describe this as “thin gruel given renewed concerns about the fragility of the global economy”.
And it isn’t just energy and commodity companies. S&P said 25 out of 32 global capex leaders have seen their 2016 capex forecasts cut in the past six months. That’s an expected spending fall of $58bn to $491bn.
"Our pessimism regarding the corporate capex outlook is founded on the weak prospects for commodity-related capital investment but, even so, the scale of recent cutbacks has been remarkable,” said Gareth Williams, senior director of corporate research at S&P.
"In addition to the slump in commodity capex, global overcapacity remains a problem for industries such as steel and shipping.”