[LONDON] The world's top-spending corporations are set to cut back on investment in 2015 for the third year in a row, according to a report issued by Standard & Poor's on Monday, as a commodities sell-off hits confidence.
Capital expenditure (or capex) by non-financial corporations is set to fall by 1 per cent this year and by 4 percent in 2016, according to S&P's 2015 global capex survey, which tracks the top 2,000 public and private corporate spenders.
A rise in capex is seen as crucial for any long-lasting economic recovery. Years of falling capex have led to extra scrutiny of spending patterns from companies, which are allocating an increasing amount to shareholder payouts and share buybacks over reinvestment in their business.
S&P's survey cautioned against only blaming the boom in share buybacks for the capex struggle, however, saying it was still mainly a US rather than global phenomenon - even with European buybacks playing catch-up.
The report said this year's decline would be mainly due to the energy and materials industry, which is set to cut spending by 14 per cent as it fights a loss of confidence in commodities amid fears over demand from China. "The gloom is explained by the commodity-capex crunch, which began last year and is now gathering momentum," said S&P economist Gareth Williams.
Excluding energy and materials, global capital spending is estimated to rise by 8 per cent.
While companies certainly have the resources to lift spending, with some US$4.4 trillion of cash and equivalents on the balance sheet, S&P pointed to other sector-specific issues that might be putting the brakes on capex.
The rise of software-driven technology powerhouses has led to investment in acquiring other companies' research know-how rather than investing on the manufacturing side, S&P said, while automakers are continuing to struggle with overcapacity that tends to lead to cash preservation rather than more spending.
The next hurdle for company spending will be a transition to higher interest rates, especially in the US, the report said. While there is a greater degree of confidence from the corporate landscape, a lack of visibility on investment returns remains.
"Companies will invest when they can feel sufficiently confident of adequate return and the best guarantee of that is some degree of visibility around economic and financial trends,"S&P's Mr Williams said.