LONDON (Reuters) – Global corporates are spending less on developing the assets that will help drive future earnings growth than in previous years and the trend looks set to stay, a study said.
While many firms are cash-rich and need to replace ageing infrastructure, confidence about the economic recovery remains low and pressure on profit margins is holding back some projects, said report author Standard & Poor’s.
Added to that, a pullback in capital expenditure in traditionally big spending sectors, such as mining and energy, is expected to lead to a fall in spending of 2 percent in 2013 and 5 percent in 2014, adjusted for inflation.
While some companies have been rewarded in recent months with a share price rise after announcing capex plans, many investors are still keen for firms to return cash in the form of a share buyback or dividend payout.
“S&P;’s findings present a troubling picture for capital expenditure trends globally”, said Gareth Williams, corporate economist at S&P;, referring to the inaugural annual report.
“The energy and materials sectors’ share of capex has risen dramatically over the last decade, so a fading commodity â??super-cycle’ will make it difficult for global capital expenditure to grow.”
Those concerns have intensified after weak trade data from China, the world’s biggest consumer of raw materials, which described the outlook as “grim”.
However North America is expected to grow its share of global spend to 36 percent in 2013, as Europe’s share slips from a third to a quarter, the report said. But increased investment by the Europe’s top energy companies will help the region deliver positive capex growth this year.
Elsewhere, emerging markets were “showing signs of capex fatigue”, with Latin America set to post the weakest growth across all regions in 2013. Asia is also weak while current estimates for Australian spend are down 12 percent in 2013.
(Reporting by Simon Jessop; Editing by Louise Heavens)