BUSINESSES have been disappointingly slow to invest since the financial crisis. Global capital expenditure by non-financial firms is expected to fall by 1% this year, according to Standard & Poor’s, a rating agency, and by a further 4% in 2016. If those predictions are right, that will be four straight years of decline (see chart) despite the adoption of very low interest rates throughout the developed world, a policy seemingly designed to encourage companies to borrow and invest.
Admittedly, the latest decline is highly concentrated in the energy and industrial-materials sectors, which have been hit by falling commodity prices. Excluding them, capex will rise by 8% this year. But that is of only limited comfort; investment in energy and materials has been hugely important in recent years, comprising 39% of all capex in 2014.
Falling commodity prices reflect worries about the outlook for the global economy. Those worries help explain not only why interest rates are so low, but also why companies are reluctant to invest. Why expand capacity if extra demand is unlikely to materialise?
On top of those cyclical...
from The Economist: Finance and economics http://ift.tt/1DPZU5c
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