Stalling global corporate spending to remain weak: S&P
PARIS, France - Investment in emerging markets is expected to slump this year as part of a global downturn in corporate spending that is set to last into 2015, according to Standard & Poor's (S&P).
Worldwide corporate investments are expected to dip 0.5% this year after a 1% fall in 2013, stalling at around $3.3 trillion for 3 years in a row, the agency said in a report.
"A recovery in capital expenditure (capex) remains one of the most keenly anticipated trends in the global economy," said Gareth Williams, corporate sector economist at S&P in London.
"Our survey suggests the capex cycle remains stuck in neutral, with declining commodity and emerging market capex overshadowing a modest turnaround in developed markets."
The fall in spending comes despite the huge war chest of ready money built up by companies over the past half-decade.
S&P estimated the top 2,000 companies by capex globally held around $4.5 trillion in cash on their balance sheets as of the end of last year.
The fall in investment has been particularly hard in emerging countries, including the BRIC nations of Brazil, Russia, India, and China, where corporate spending is predicted to fall 4% this year after a similar slump in 2013.
"This is a significant reversal of a previously upward trend and has left global capex growth more reliant on slow-growing developed markets," said S&P in a press release.
The energy and commodity sectors, typically high-investment industries which accounted for some 42% of global corporate spend in 2013, have also started tightening the purse strings.
Mining majors such as BHP Billiton and Rio Tinto have already started cutting outlay amid concern about the long-term outlook for commodity prices as economic growth in major buyers such as China slows.
S&P said there is now evidence of stalling growth in the larger oil and gas sector, where the world's top spenders such as PetroChina, Gazprom, and Petrobras, are being hindered by declining profits and falling bank lending. – Rappler.com