Thus the latest figures are sobering. . Businesses are revising down future capex investment, too. Our analysis of the plans of around 700 big, listed American and European firms suggests real-terms spending will fall by 1% in 2023. Markets have caught on to this change.
Why is the boom coming to an end? Three potential explanations are most convincing. The first is that companies have less cash to burn than even a few months ago. Firms across the rich world accumulated extraordinarily high cash balances during the pandemic, in part because of grants and loans from governments. According to our calculations, however, since the end of 2021 the piles have fallen by about $1trn in real terms .
The second relates to global economic conditions. Supply-chain snarl-ups are not as bad as in 2021, meaning there is less need to invest in extra capacity or stock up on inventory. Figures from PitchBook, a data provider, suggest that in the fourth quarter of 2022 the number of venture-capital deals in supply-chain tech fell by about half compared with the year before.
The third factor may be the most significant. The capex boom was based in large part on the assumption that pandemic lifestyles would last forever, prompting economic reallocation that would require an ever-larger number of new technologies. In many ways, however, the post-pandemic economy looks remarkably similar to the pre-pandemic one. It turns out there is a limit to people’s Netflix consumption and Peloton use. Spending on services has nearly caught up with spending on goods.
There are exceptions—not least oil companies—which are likely to boost capex this year, but these firms account for only a small share of overall spending. The companies that led the capex charge are retreating. Semiconductor firms, in particular, have realised that they massively overinvested in capacity, and are now pulling back. In the final quarter of 2022 American real spending on information-processing equipment was down by 2%, year on year.
Yes