Low oil prices pull down global investment

 

If these projections are realised, the real-term value of global corporate capex in 2017 will have slipped back to where it was in 2006, the rating company said in the latest analysis, "Global Capex: Where Are We Now?".

One small positive sign highlighted by the report is that capex growth excluding energy and materials remains likely to return to positive growth (+2 per cent) this year. Capex expansion is expected in the IT, consumer discretionary (autos and media), and health care sectors. But taken as a whole, this provides little consolation given renewed concerns about the fragility of the global economy and questions about the efficacy of central bank efforts to trigger investment.

"We now estimate that the oil and gas companies in our Global Capex 2000 universe cut their capex by nearly a quarter (24 per cent) in 2015, with a further 15 per cent  reduction slated for 2016. The magnitudes in metals and mining are similar, with a 22 per cent reduction capex decline in 2015 and a further 20 per cent cut expected this year. These cuts are far more severe than our previous August 2015 survey suggested, and point to the extreme urgency with which commodity-related companies are addressing the pressures on cash flow created by slumping prices 

and global overcapacity," it said.

Of the 32 companies in its Global Capex 2000 universe that were expected to invest more than US$10 billion in 2016, 25 have seen estimated spending fall in the past six months. Their total expected capex outlay has fallen by $58 billion from $549 billion to $491 billion.

"Our pessimism regarding the corporate capex outlook is founded on the weak prospects for commodity-related capital investment but, even so, the scale of recent cutbacks has been remarkable," said Gareth Williams, senior director, Corporate Research, Standard & Poor's 

Ratings Services. 

"In addition to the slump in commodity capex, global overcapacity remains a problem for industries such as steel and shipping. More broadly, poor revenue and EBITDA trends explain much of the paucity of capex growth."

The continuing weakness in capex is a global phenomenon. All regions saw corporate capex contract in 2015, and only Japan - a country with less commodity exposure - is expected to see growth in 2016. Consensus capex forecast trends repeat this pattern, with forecasts still falling for all regions bar Japan. Revisions trends remain notably poor in Latin America, reflecting that region's significant exposure to weakness in commodities and China's moderating rate of economic growth.