S&P Global Ratings Survey: Global Capex Switches To Growth

Global corporate capital expenditure growth is finally turning positive says S&P Global Ratings, forecasting 5.5% growth in 2017 in what is the fifth edition of its annual survey, "Global Capex: Ready For Takeoff."

Encouragingly, the recovery is broad-based, with positive growth expected in all regions and in nearly all sectors. Both Japan and Western Europe are expected to see double-digit capex growth of 11% and 10%, respectively, while prospects for Asia-Pacific excluding Japan (+3%) and North America (+4%) are more modest. While in 2016, only Japan saw a positive contribution; for 2017, all regions are expected to see positive growth, with Western Europe's turnaround the biggest single contributor.

A similar picture can be seen in terms of prospective sector growth. Only telecoms are expected to see capex decline (-4.8%), reflecting a peak in 4G network investment by the largest Chinese telecom companies. Double-digit increases are expected in the IT (+13.8%) and consumer (+11.2%) sectors, and more modest 2%-6% growth rates expected for all others.

Gareth Williams Companies , Senior Director, Corporate Research, S&P Global Ratings, said: "The improved outlook for capex is important economically, as it will help make recoveries more sustainable, but also for the longer-term growth prospects of the corporate sector which has seen a lost decade of capex spending. "Greater capital spending not only signifies growing confidence in the durability of this recovery but, by helping lessen reliance on an extraordinary degree of monetary stimulus, also helps to make the improvement more sustainable in the medium term and less vulnerable to the gradual withdrawal of ultra-cheap money."

There are reasons to believe that this is unlikely to be a false dawn for capex. There are other indicators of confidence that suggest that sustained recovery is underway, including improved signals from R&D spending, a recovery in operating performance for companies in aggregate and, crucially, the ending of the commodity capex crunch. Energy and materials retained a 19% share of total capex in 2016 and the oil & gas and metals & mining sectors are both expected to see modest increases in capex in 2017, after falling by 45% between 2013 and 2016.

Current consensus and guidance-based estimates for growth 2018 and 2019 are less positive, suggesting a stalling of growth, but our analysis suggests that there is a persistent tendency for analysts' second- and third-year capex estimates to underestimate how much will be spent. We expect to see these early estimates for 2018 revised higher in coming months as companies set out their plans for next year. Only a slipping back into recession in one of the major economic regions would seem likely to have the potential to undermine the positive capex momentum now in play.

Only a rating committee may determine a rating action and this report does not constitute a rating action.

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