The level of capital expenditure (capex), or corporate investment, needs to increase, or the global economy will enter a persistent slowdown, according to asset management firm NN Investment Partners.
According to the fund manager, capex was booming in developed markets a year ago, but it has since slowed, leading to fears that developed markets could become mired in low productivity and low growth. NN Investment Partners senior economist, Willem Verhagen, commented: “From a cyclical perspective, solid capex growth is vital for pushing global growth back above potential. From a more structural perspective, strong capex growth will enhance the resilience of the expansion by strengthening the supply side, both by raising the amount of capital per worker and by improving productivity growth as newly installed capital goods embody more of the latest technologies.”
Verhagen added that capex is likely to recover when global political risks decline and Chinese economic momentum finds a bottom. He noted that tight labour markets could increase the incentive to spend on raising productivity, but commented: “The risk is that uncertainty could last too long for capex to come to the rescue of the global economic slowdown.”