Hello. Today we look at the global boom in capex plans, the week ahead in economics, how the world is reducing its reliance on oil and a tennis victory for economists.
Betting on the future
With inflation jitters rising, central bank tapering looming and supply chain chaos ongoing, the global economy could do with some good news.
And a vote of confidence in the future by companies may just be it.
S&P Global Ratings forecast global corporate capital expenditure, or capex, will jump by 13% this year, with growth in all regions and broad sectors — especially in semiconductors, retail, software and transportation.
Economists at Morgan Stanley forecast that global investment will reach 115% and 121% of pre-recession levels by the end of 2021 and end of 2022, a much faster recovery than previous downturns.
A global capex indicator compiled by JPMorgan Chase economists shows equipment investing cooling, but still expanding by 6.6% this quarter. “That businesses continue to invest supports the view that near-term headwinds should fade,” the economists wrote in a note.
On the supply side, blockages brought on by the Covid-19 pandemic are forcing businesses to invest in new production facilities; calls for a cleaner environment are spurring spending; and the big semiconductor crunch has prompted a wave of investment.
On the demand side, pent up consumer spending is convincing executives that capital is worth outlaying. Driving it all are low interest rates and bets they’ll stay that way.
The capex surge offers a rare ray of hope for the global economy into 2022 and beyond and is a very different dynamic from the last global crisis of 2008, when austerity and weak investment dragged on employment and wages for years to come.
“A recovery in business investment is critical for longer-term growth, as capital accumulation is key for lifting productivity growth,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “Once the unprecedented global policy stimulus fades, the world needs business investment and structural reforms to sustain growth.”
To read the full story, click here.
The Week Ahead
Chinese data this week will show the damage done from a widespread Covid outbreak last month that partially shut the world’s third-busiest container port and sent parts of the country back into lockdown.
Growth in industrial production, retail sales and investment likely weakened in August. Purchasing managers’ surveys and other high frequency indicators already foreshadowed a sharp drop in spending after tough new virus restrictions were introduced to contain cases.
Elsewhere, global inflation is likely to be a recurring theme this week as not only the U.S. and U.K. release consumer-price data, but also Argentina, where the rate of increase is running close to 50%.
For a full rundown of the week ahead, click here.
Today’s Must Reads
Click on links to read the stories in full:
- U.S. outlier | Stimulus in the U.S. is leaving its economy recording faster inflation rates than its peers. Meantime, the Federal Reserve is reading to start tapering asset purchases this year.
- Higher taxes | U.S. House Democrats are set to propose raising the top corporate tax rate to 26.5%, people familiar with the matter said, among other plans that fall short of President Joe Biden’s ambitions in a bid to help improve chances of passing a major social-spending package.
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Jobs outlook | U.S. employment will see stunted growth during the remainder of the decade, with technology eliminating some roles and retiring Baby Boomers contributing to a drop-off in participation, according to federal government projections.
America's Dismal Job Growth
Compared to the pre-Covid peak, only 2.6 million additional jobs expected
Source: Bureau of Labor Statistics
Note: The historical data is compiled by the Employment Projections program and is an aggregate of data from two separate BLS surveys: nonfarm payroll employment from the Current Employment Statistics survey; and agricultural, private household, and self-employed employment from the Current Population Survey
- Tricky balance | Nations across Southeast Asia are slowly realizing that they can no longer afford the economy-crippling restrictions needed to squash one of the world’s worst Covid-19 outbreaks.
- Japan’s choice | The three declared candidates vying to become prime minister offer an economic choice between a drive to stoke inflation, a bid to rebuild the middle class, or an acceleration of digital reform.
- Argentina votes | The ruling coalition suffered its biggest defeat in two years in office after a primary election that saw the opposition winning most districts amid discontent over rising poverty and surging inflation.
- Book report | The turbulence of the pandemic is likely just the curtain-raiser for a coming age of upheaval in the global economy, according to historian Adam Tooze’s new book.
Need-to-Know Research
The world has steadily cut the amount of oil needed to power its economy, but the U.S. shale boom in the last decade slowed that decline and poses a challenge for transitioning to cleaner energy.
Only 0.43 of a barrel of oil was consumed per $1,000 in global gross domestic product in 2019, a 56% drop from the roughly 1 barrel needed in 1973, according to a report published by Columbia University’s Center on Global Energy Policy from Christof Ruhl and Titus Erker.
Oil intensity, as the metric is called, has steadily fallen by an average of 0.01 barrel each year over the last three and a half decades, regardless of boom or bust cycles, as nations find alternative fuels and oil-dependent technologies become more efficient.
Read the full story here
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September 13, 2021 at 05:00PM
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