ONE of the justifications for low interest rates and quantitative easing is that reduced borrowing costs will encourage companies to invest more money - building plant, buying equipment and hiring new workers. But the record has been pretty disappointing. A survey by Standard & Poor's funds that global capital expendiure by non-financial companies is likely to decline in 2015 for the third year in succession, even though the corporate sector has an estimated $4.4 trillion on its balance sheet, earning very little.
Admittedly, the problem this year is focused on one particular sector - energy and materials. Falling commodity prices have led to big cutbacks; S&P estimates the decline will be 14% this year. If you exclude commodities, the rest of industry will grow capex by 8%. But that is only of limited comfort. The commodity sectors were helping to keep global capex propped up - they accounted for 39% of the total in 2014.
S&P is dubious of the view, taken by Andrew Smithers and others, that the cash has been diverted to share buy-backs; this is a largely American phenomenon. In 2014, North America was the only region delivering capex growth. This year, it is the only region expected to report a decline and...Continue reading
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