There will be no investment boom among its rated non-financial corporates that would stimulate growth in the weakly growing major advanced economies, according to research by Fitch Ratings.
In its report, titled
‘No Economic Boost to Come from Global Corporate Capex’
, the credit ratings agency (CRA) predicts that capital expenditure (capex) will be flat or only have modest growth in 2013 and 2014. Fitch does not believe that it will fall substantially, simply that there is not a ‘boom’ stored up.
Fitch’s historical capex data show that Fitch-rated entities have not underinvested in recent years. Fitch has used the capex: corporate revenues and capex: depreciation and amortisation ratios to show this. The first ratio is a more dynamic measure of capex performance in that it tracks capex against non-financial corporates’ revenue growth. The second can be classified as an accounting measure, but captures well how non-financial corporates are investing in their business relative to its use as measured by depreciation and amortisation.
In 2005 the capex to corporate revenue ratio among US corporates was 5.8% and had grown to 6.8% by 2008. It fell sharply to 5.9% in 2009. However, capex grew over the next three years, with the ratio increasing to a forecast estimate of 6.7% in 2012. The lowest the capex to depreciation and amortisation ratio fell to was 1.01x in 2009, suggesting that plants and equipment was not unduly run down among Fitch’s rated entities.
There is a similar picture for Fitch’s rated corporate entities in Europe, the Middle East and Africa (EMEA). At its low in 2010, one year after that of the US, capex to revenue fell to just over 6%. It started to grow in 2011, rising to 6.7% for the 2012 forecast. The capex to depreciation and amortisation ratio remained above 1x throughout the period under review.
Fitch forecasts falls in US corporates’ aggregate capex in 2013 and a further fall in 2014. The CRA expects the ratio of forecast capex to forecast revenue to be 6.5% in 2013, just below the 2012 forecast, with a fall to 6.2% in 2014. In EMEA Fitch expects a fall in capex in 2013 and a recovery in 2014. Fitch also believes that if there is a radical improvement in market sentiment corporates have the capacity/firepower to increase capex accordingly.
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