Düsseldorf The world economy is growing faster than it has been in almost 50 years. At the same time, more and more industries are reaching their capacity limits. Now companies are reacting by drastically ramping up their investments: in 2021 an expected 13 percent to 3.1 trillion euros worldwide. The last time there was similarly high growth was in the boom year 2007.
This is signaled by the forecasts of the 2000 companies with the highest investments and the specialist analysts responsible for them, which the American financial services provider S&P Capital IQ has evaluated. Without the energy and raw materials companies, which have drastically reduced their future spending for years, companies in all other industries should invest 2.4 trillion euros this year, as much as never before.
This is a turnaround after companies held back a decade. The director of the Institute of German Economics, Michael Hüther, sees three reasons for the investment boom: “Catch-up effects after the pandemic lockdown, a reaction to the many delivery problems in global production and, finally, companies’ efforts to find answers to structural change towards climate neutrality to find.”
According to a Handelsblatt ranking, America’s online retailer Amazon is investing the most of all corporations with a good 37 billion euros, followed by Samsung from South Korea and China’s oil company Petrochina with just over 30 billion euros each. In Europe, Deutsche Telekom stands out and is likely to increase its investments by a good 70 percent year-on-year to just under 22 billion euros.
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Whether Intel and Infineon in semiconductor manufacturing, Toyota, VW, BMW and Daimler in car manufacturers, Alphabet and Apple in IT, or Chevron and Exxon in oil: companies in almost all industries are investing more. The growth rates of more than 25 percent this year are greatest in the semiconductor industry, closely followed by retail. With the expansion of online trading, digitization is providing a powerful boost here.
What surprises most is probably one of the ecologically most controversial industries: After years of reluctance, the oil companies are again investing significantly more, especially in the expansion of alternative energies. At Exxon, activist investors forced the U-turn. Before that, the management teams of BP, Eni, Royal Dutch Shell and Total in Europe had committed themselves to promoting the energy transition. This will require hundreds of billions of dollars in investments.
“After the investment backlog of the past few years, in view of major material shortages in many industries, an increasing number of companies are increasingly willing to invest more and a lot of money in the future,” says Ufuk Boydak, CEO of the Loys fund company.
Before that, there had been a downright investment slump for almost a decade. The strongest between 2014 and 2016, when the 2000 companies with the highest investments had cut their spending by eight percent each three years in a row. Measured against this, the minus in the Corona year 2020 was almost mild at six percent. Four prerequisites are responsible for the turnaround in investments.
1. High demand
All three major regions in the world, America, Asia and Europe, will grow strongly in 2021. Not only the highly developed industrial countries are booming, but also economically downstream regions: After the second quarter of this year, exports from countries in Central and Eastern Europe were a good 20 percent above the pre-crisis level. In the Middle East and Africa it was almost 30 percent.
The consequence of this boom is a growing need for containers and ships to transport goods around the world, for wood and other building materials, for machines and equipment, but above all for semiconductors in the face of digitization in more and more industries: they are also found in everyday products more and more chips.
Catch-up effects reinforce this trend. “In recent years, companies have held back from investing because of the trade dispute and the subsequent coronavirus pandemic,” says Dirk Steffen, Head of Capital Market Strategy at Deutsche Bank. Because the companies are now unable to meet the high demand, they are investing in new and expanding existing production facilities.
Probably the greatest is the shortage and therefore the urge to invest in the semiconductor industry. “The lack of chips is slowing the recovery of the new car market in Europe,” says Peter Fuß, partner at the management consultancy EY: “It takes about two years to build up additional production capacities for semiconductors, so the topic will keep the industry busy for a long time.” The consequence is investments in new and existing production facilities.
2. Big profits
Rising profits are a prerequisite for the record high investments. In many industrialized countries, corporations will earn more than ever in 2021, including the USA and Germany. The 30 Dax companies alone should make a net profit of almost 105 billion euros in the current year. That would be a good ten billion euros more than in the previous record year 2017.
Companies invest in order to remain competitive. According to an evaluation by EY, there are enormous efforts in the areas of digitization, but also in research and development (R&D). Of the 17 DAX companies that provide corresponding information in their reports for the second quarter of the current year, 14 reported rising R&D spending. In total, there is an increase of 13 percent to 13.6 billion euros. That is also a record – and R&D expenditure is not even included in the total investment.
3. Lots of cheap money
Record high cash resources of the world’s 2,000 strongest investments – the equivalent of 6.6 trillion euros – make the decision to invest easier. In addition, in many cases low-interest loans and bonds fuel the courage to spend money. The central banks are sticking to their zero interest rate policy even in the upswing year of 2021.
Even more: with bond purchases with a total volume of 1.85 trillion euros, the European Central Bank (ECB) has been trying to accelerate the flow of credit in the economy since the corona pandemic. Only recently, the industrialized nations organization OECD recommended that the ECB hold on to this economic aid.
Amazon recently managed to borrow $ 3.5 billion from investors through bonds with an interest rate of less than half a percent. With 37 billion euros, the online retailer is likely to invest more than any other company in new logistics centers and other business areas this year.
In Germany, Daimler can also get fresh money cheaply with several billion-dollar bonds with an interest rate of 0.75 percent. This will facilitate investments of around nine billion euros this year, especially in e-mobility.
4. Economic stimulus programs
After all, many companies are increasingly counting on public contracts from tax revenues. In the United States, President Joe Biden’s government has just reached an agreement with the opposition on a $ 1 trillion infrastructure package. The European Union is not inferior to the 750 billion euro reconstruction fund. It is primarily about funds for the climate change and the expansion of digitization.
Companies in many industries benefit from this, including suppliers with renewable energies, car manufacturers with e-mobility, and telecommunications companies with more powerful broadband. But mechanical and plant engineering also receives orders to supply components for wind turbines, heat pumps and rail transport, as do construction companies for the expansion and repair of roads and bridges.
All these additional orders, which are decided in the downturn of the pandemic and implemented in the upswing, in turn require new investments from the contractors. Without the right machines and systems, it is impossible to tar roads or build wind turbines.
More: Billions for the future – investments in these sectors are particularly high