Why Corporations Around the World Aren’t Spending

Business investment dropped off substantially in the wake of the global financial crisis and, four years later corporations are still reluctant to spend. Despite extraordinary levels of financial surplus, elevated returns on capital and very low corporate bond yields and loan costs, corporations have adopted a cautious stance on large capital commitments. Most surveys cite uncertainties over economic policy, politics and the world financial system as the reasons.

The high degree of uncertainty about the economic and political landscape muddles the investment picture for corporate decision-makers. Worries about fiscal cliffs in the United States and Japan, industry regulation, high budget deficits, and the potentially damaging consequences of unconventional monetary policy are all mentioned as deterrents to capital expenditures. What will it take to persuade more companies to open up their wallets?

Click here to read this special LIGNET economic analysis prepared by Peter Warburton, PhD.

Dr. Warburton is Director of London-based Economic Perspectives Ltd. His clients include senior wealth managers around the world.