Companies seen slashing capex 12% cent this year, deeper than in 2009: Data

Companies seen slashing capex 12% cent this year, deeper than in 2009: Data

FILE PHOTO: Workers remove boards from windows in a local store, as phase one of reopening after lo
FILE PHOTO: Workers remove boards from windows in a local store, as phase one of reopening after lockdown begins, during the outbreak of the coronavirus disease (COVID-19) at 5th Avenue in New York City, New York, U.S., June 12, 2020. REUTERS/Eduardo Munoz/File Photo

BENGALURU: Big and mid-cap firms globally are expected to slash capital spending by an average 12 per cent this year as they reel from the fallout of lockdowns and other measures imposed to rein in the coronavirus pandemic, analysts' estimates show.

The predicted cut is bigger than the 11.3 per cent decline that occurred in 2009 in the wake of the global financial crisis and would be the steepest drop in the 14 years for which data compiled by Refinitiv is available.

"For many firms the near-death experience of the lockdown - where cash flows have simply dried up - will have a long-run effect on their willingness to take risks and invest," said Keith Wade, chief economist at British asset manager Schroders.

"Weaker investment will also hamper a recovery in productivity and reinforce the outcome of slower GDP growth."

Reuters calculated average spending cuts by looking at estimates compiled by Refinitiv for nearly 4,000 firms.

By sector, energy, consumer discretionary and real estate were seen taking the biggest axes to capital expenditure with cuts of 25 per cent, 23 per cent and 20 per cent forecasted respectively.

Among major names announcing big cuts, BP Plc , Exxon Mobil , General Electric have all said they will slash 2020 capex by at least 20 per cent.

By country, US companies are expected to slash capex by 22 per cent, Russian firms by 19.2 per cent and French firms by 13.4 per cent. In Asia, South Korean companies led with an average capex drop of 16 per cent predicted, followed by Japanese firms with an 11 per cent slide.

In China, which has managed to bring its coronavirus outbreak under control, the expected decline is much smaller at 4.5 per cent.

The data also showed analysts expect companies to cut operating costs by 19.7 per cent on an average this year, which would also be the sharpest decline in at least 14 years. Revenue is seen falling 5 per cent.

Mark Litzerman, head of portfolio management at Wells Fargo Investment Institute, said different industries would show different rates of recovery.

"Hotels, restaurants and leisure, retail and airlines should revive faster, especially assuming the introduction of an effective vaccine," he said, as they were hit harder and will recover sharply from a lower base.

A return to previous levels of profitability may take longer, however, due to permanent changes in consumer behavior, he added.

Source: Reuters

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