S&P Global Ratings forecasts 3% global capex growth In 2019

June 20, 2019

HONG KONG - Global corporate capital expenditure growth is fading fast, says S&P Global Ratings, which is  forecasting an increase of only 3% in 2019. This follows a mere 2% growth in last year's annual survey, and will offer little help in sustaining the current economic cycle, S&P says.

For 2020 and 2021, current projections point to a 1% decline in spending, but S&P says these forecasts should be treated with caution. 

Gareth Williams, S&P Global Ratings' Corporate Economist, said: "Corporate capex has been a perennial disappointment in this economic cycle, particularly given large and sustained monetary stimulus, cuts in corporate taxation, and plentiful balance sheet cash.

"The hoped-for unleashing of a corporate capex boom remains elusive and seemingly unlikely in the next couple of years."

However, he adds that the detail of the survey reveals a more nuanced and, in some ways, optimistic picture.

"2019 growth prospects in Latin America (+23%), Japan (+7%), Western Europe (+4%), and for many sectors are healthier than the headline numbers suggest," he says.

"In the U.K., we expect a robust resumption of capex growth (+4%) despite ongoing Brexit difficulties, but this may not materialise if political uncertainty and negative forecast revisions continue."

The gloomier global picture is dominated by trends in North America, where growth has slumped, and Asia-Pacific ex Japan, where capex is expected to shrink again. A sharp downturn in Asia-Pacific IT spending and cuts to U.S. oil capex are key contributory factors.

The survey suggests that Chinese corporate capex may fall again by 1% in 2019, after a 2% decline in 2018.

Evidence of trade tensions affecting capex growth is limited, but indirect effects and tensions around technology are amplifying an already sharp downturn in IT hardware capex.

Waning capex growth may also reflect a redirection to other forms of growth investment (R&D and acquisitions) and higher shareholder returns, S&P says. The share of cash flow directed to capex is at its lowest ebb since 2007.

The report adds: "Digital disruption is boosting capex in sectors like retail, but reflects the battle for dominance rather than growth.

Decreasing reliance on physical products and environmental concerns may mean that future capex cycles will be more subdued."  www.standardandpoors.com (ATI).