There are indications that capital expenditure (capex) growth will accelerate in 2014. Capex growth will be highest in the US, as in Europe profitability is still lower and on bank lending standards it lags the US.

## US corporate spending intentions


Source: Bloomberg, ING IM (March 2014)

## What exactly are the drivers of capex?

These are higher nominal growth, an increase in capacity utilisation, higher margins and easier lending standards for corporates. Finally, the age of the capital stock is high and is becoming a drag on profitability. Investing in new structures (e.g. machinery) could become more rewarding from a productivity point of view. Of course, above all corporate confidence needs to improve.

## Return of overseas investments to the US

One additional element that may not be overlooked is the on-shoring of overseas investments back to the US at the detriment of emerging markets. This concerns the challenges emerging markets are currently facing. Rising unit labour costs, social and political tensions in several countries, a lack of reforms and, in general, slower growth have made investments in emerging markets less compelling than before. 

The shale energy evolution in the US may be another reason to increase capex in the domestic economy. This should be supportive to US growth and hence corporate earnings. In an environment where earnings growth will become the dominant driver for equity returns this is a crucial element. From a sector point of view, we expect the Industrials, Technology and Financials sector to be the likely beneficiaries.