| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : Global Economy Last Updated: Jan 30, 2014 - 10:08 AM


Capex spending by global companies forecast to fall in 2014
By Michael Hennigan, Finfacts founder and editor
Jan 30, 2014 - 10:04 AM

Email this article
 Printer friendly page

With the economic recovery seen as strengthening in the developed world this year, investors are hoping that the 2013 momentum in the stock markets would be sustained by companies spending some of their cash hoards on capex - - capital expenditure investments. However, capital spending by US companies is expected to grow this year at its slowest pace for four years, in a sign that the corporate sector has doubts about the outlook for global demand. Meanwhile, gross capital investment by the US public sector dropped to just 3.6% of US economic output last year, the lowest since 1947, compared with a postwar average of 5%. Last month Standard & Poor's said global capital expenditure is shrinking with the fading of the commodity cycle and European companies remain relatively constrained by weak cash flow. "Hopes for an investment-led recovery are misplaced in our view. Our latest analysis suggests that global capex expenditure will fall by 5% and that in Europe by 3% in in 2014 (real terms)."

A survey of non-financial companies in the S&P 500 index shows they are expected to boost capital expenditure by just 1.3% for the year ending in June, according to Factset, a data company. The Financial Times says that spending by companies in the S&P 1200 global index increased by 15% in 2011 and 11.3% in 2012, but it was unchanged in the first six months of 2013 compared to the equivalent period of the previous year, according to S&P Capital IQ, another data company.

Meanwhile, in the Bank of America Merrill Lynch survey for January, 58% of fund managers said they wanted companies to prioritise capital expenditure over other uses of cash flow, the highest number since the survey began in 2001 [see chart above].

According to Thomson Reuters data, big companies around the world held almost $7tn of cash and equivalents on their balance sheets at the end of 2013 - - more than twice the level of 10 years ago. Capital expenditure relative to sales is at a 22-year low and some strategists reckon the typical age of fixed assets and equipment has been stretched to as much as 14 years from pre-crisis norms of about 9 years.

Reuters says many argue that the hoarding is driven by durable demographic trends and political reforms that are stirring corporate anxiety about exposure to soaring pension and healthcare costs as workforces age and government coffers shrink.

If that's true, then this brewing economic recovery may not release pent-up business cash on any scale close to that suggested by the eye-popping cashpiles.

S&P said in a report last month [pdf] that continuing slow growth in Europe appears to be structural rather than cyclical. The implication is that there is limited appetite or incentive for European corporates to innovate and invest in new technology and more efficient plant and equipment. The contrast with the  US is stark. In 2008 Europe’s share of global capex was 4% ahead of the US at 28%, but today Europe’s share has fallen  to 24%, as much as 10% behind the US (see Chart 8 in report).

"Our second concern relates to the lack of a coordinated public policy response within Europe to the challenge of cheap energy in the US.

The growing differential in energy costs in Europe relative to the US (see Chart 9) is starting to affect competitiveness of industry (see Chart 10) through various channels. High and rising electricity costs in Europe have a direct effect across most industries to varying degrees but petrochemical and related commodity industries face particular challenges as a result of cost differentials for (mostly ethylene derived) feedstock."

About a quarter of Japanese firms plan to hike capital spending in the next financial year, a Reuters poll shows, a sign of a cautiously positive sentiment towards a key engine for the nation's economic recovery.

Reuters says robust capital expenditure is seen as critical to Prime Minister Shinzo Abe's goal of sustainable economic growth and the survey comes after a surge in core machinery orders for November boosted hopes that such investment is decisively turning upwards.

The Reuters Japan Corporate survey, conducted Jan 6-20, also showed that 60% of firms plan to keep their business investment steady, which would follow an expected rebound in the country's capital expenditure for the current financial year.

While the poll did not point to a significant expansion, some of the 23% of respondents planning to boost investment, Abe's policies or "Abenomics" of bold fiscal and monetary stimulus have started to make their impact.

Reuters says the long stretch of declines in capital spending between fiscal 2008 and 2011 led to much factory equipment and software becoming out of date. Of the 263 firms responding to a question on what they would invest in, 59% said they plan to upgrade ageing equipment.

Finfacts: Huge corporate cash holdings of $2.8tn put recovery at risk; Top five own hoard of almost $400bn

Related Articles
Related Articles


© Copyright 2011 by Finfacts.com

Top of Page

Global Economy
Latest Headlines
Strong Swiss franc gloom deepens for exporters
Global investors shift focus to China; EM outflows surge to $1tn in 13 months
Global oil glut will continue into 2016
Stable growth momentum in OECD area but slowing expected in China
Prices for major food commodities in July lowest since September 2009
Global manufacturing in July weakest level in two years
US, China and UK lead top 25 target countries for foreign direct investment
Budget surpluses rare in developed countries from 1980s; Italy, France, Greece had none in 60 and 40 years
Singapore, London and Shanghai top cities for new FDI projects in 2014; Dublin in 11th place
Exchange rates shuffle as Dublin ranked 49th most expensive city; Paris at 46; Berlin at 105
Western consumer groups under pressure in China and India
Developing countries facing “structural slowdown” likely to last for years
OECD BEPS Tax Project: Amazon books UK sales in UK; Australia proposes up to 100% in penalties
Emerging Markets Index falls to 12-month low in May as manufacturing contracts
US and world economies slowing in 2015 — OECD
Global manufacturing production rose slightly in May; Trade flows weak
GDP growth in OECD area slowed to 0.3% in the first quarter of 2015
Only one quarter of workers worldwide have stable employment contracts
Automatic Exchange of Tax Information: OECD says countries won't be able to game system
Gates Foundation loses in Swiss family's shares coup
Minimum wage levels in OECD countries
Brent oil benchmark over $68 a barrel - up almost 50% in 2015
Global growth slows and manufacturing dips to 21-month low
Family-controlled firms dominate European business
Top 10 of world’s 250 largest consumer products companies account for 30% of sales
Nine of world's 20 fastest growing economies in Africa
Globalisation maybe stalling as trade growth remains weak
Global growth prospects uneven across major economies says IMF
Emerging markets growth lowest since 2009; Global growth at 30-year average
China's economic rebalancing hitting Latin American economies
New York, London, HK & Singapore top global financial centres index; Dublin recovers
Global growth in modest expansion from low oil prices/ monetary easing says OECD
Composite leading indicators point to positive change in growth momentum in the Eurozone
Global labour market trends portend paradise for some but uncertainty for many workers
Vienna remains top of World Quality of Living Rankings in 2015; Dublin at 34
Zurich and Geneva overtake Singapore to become world's most expensive cities
HSBC Switzerland and Falciani: How it happened
Global economic power to continue shift from advanced economies
Global food price index falls in January; Cereal output set for record
Global debt has risen $57tn or 17% of world GDP since 2007