THE contraction in the capital expenditure of the energy and mining sectors is seen to drag down capex growth in the Asia-Pacific region, according to a recent report published by global credit ratings and research agency Standard and Poor’s (S&P).
According to the Global Corporate Capital Expenditure Survey 2014, a report issued by S&P, the contraction in energy and mining capex will even offset the positive impact of a rebound in the information technology and telecommunications sector corporate spending. It also reflects an “emerging market capex fatigue”, which is not exclusive in Asia-Pacific but in other regions as well.
“Even in China, the global investment powerhouse, key corporates – who rank highly in the global capex league table – appear to be transitioning to slower rates of investment. To the extent that this is indicative of a wider move away from investment-led growth in that country, it is potentially of huge significance for the global economy,” the report said.
Indeed, the S&P report revealed that despite healthy corporate balance sheets, global capex spend fell by one per cent in real terms in 2013.
Current estimates suggest a similar decline is likely in 2014, with global capex likely to remain within the US$3.3 trillion mark for the third consecutive year.
Gareth Williams, corporate sector economist at S&P in London said that the global capex remained stuck in neutral, with declining commodity and emerging market capex overshadowing a modest turnover in developed markets.
“A recovery in capex remains one of the most keenly anticipated trends in the global economy,” said Williams.
The report said the significance of the pressure on energy and materials capex cannot be overstated given that these industries together accounted for 42 per cent of global corporate capex in 2013.
“Aggressive cuts to capex are already being made by metals and mining companies, while the larger oil and gas sector account growing evidence of stalling capex,” the report said.
Other sectors, especially in the IT, healthcare and telecommunication sectors, will need to take the lead in order to have healthy capex growth.
The report also said that Japan’s corporate capex is expected to bounce back.
S&P estimates that Japan’s capex to rise by two per cent in real terms in 2014 after a four per cent fall last year.
Capital expenditure growth in North America has faltered since the energy-led growth of 2011 and 2012. This has led to a continued rise in North America’s share of global capex.
European capex growth has been modest but surprisingly resilient competing with other regions over the last year,stabilising the decline in the region’s share of global capex.
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