The climb in global corporate capital expenditure growth since 2017 is quickly reversing, S&P Global Ratings said in an annual survey, whose projections indicate a 1% decline in spending for 2020 and 2021.
Global corporate capital expenditure is expected to rise by 3% in 2019, following a 2% increase recorded in 2018, according to the survey. The estimates combined public company guidance with S&P Global Ratings analysts' forecasts and market consensus projections.
"Corporate capex has been a perennial disappointment in this economic cycle, and all the more so given large and sustained monetary stimulus, cuts in corporate taxation, and plentiful balance sheet cash," said Gareth Williams, corporate economist at S&P Global Ratings.
Projections for corporate capital expenditure growth in North America point to a slowdown to 2% in 2019 from the previous year's 9%, while Asia-Pacific excluding Japan is the only region expected to register a decline in 2019, falling a further 1% after a 2% decrease in 2018.
Chinese corporations are expected to register a 1% cut in capex in 2019 following a 2% decrease in the prior year, the survey noted.
While there is limited evidence of a direct impact of U.S.-China trade tensions, its indirect impact on consumer confidence and escalating tensions surrounding technology have aggravated a sharp decline in IT hardware capital expenditure in the Asia-Pacific ex-Japan region, according to the survey.
However, certain regions are poised to experience positive capex growth in 2019, with expectations of a 23% rebound in Latin America from an 8% drop in 2018, more than 7% growth in Japan and 4% in Western Europe.
Capital expenditure in the U.K. is also expected to rebound 4.2% despite the uncertainty surrounding Brexit, provided that negative forecast revisions and political uncertainty do not persist.
The share of cash flow allocated for capital expenditure compared with that for other uses is the lowest since 2007, Ratings said, adding that this could indicate a shift in focus towards other means of growth investment such as acquisitions and research and development.