For many companies, the experience of quarantine, when their cash flows have completely dried up, will have a long-term impact on their willingness to take risks and invest, said Keith Wade, chief economist at the British company Schroders. “Weaker investment will also make it more difficult to revive productivity and strengthen the resulting slowdown in GDP growth,” he added.
The strongest cuts by sector await energy, the producer of consumer goods considered unnecessary and real estate. The decline in spending should be in the range of 20 to 25 percent.
Among the large companies, BP and Exxon Mobil and the industrial conglomerate General Electric have already announced high spending cuts. Their capital expenditures are expected to fall by at least 20 percent this year.
According to countries, corporate spending should fall by 22 percent in the United States, by 19.2 percent in Russia and by 13.4 percent in France. In Asia, companies in South Korea expect the largest spending cuts, by an average of 16 percent. In Japan, companies’ capital expenditures are set to fall by 11 percent. In China, spending cuts are expected to be much lower, at just 4.5 percent.
Analysts also expect companies to reduce operating costs by an average of 19.7 percent this year, the most in fourteen years. Their revenues are expected to fall by five percent.
Wells Fargo Investment Institute analyst Mark Litzerman pointed out that different industries are showing different rates of recovery. “Hotels, restaurants and leisure services, retail and airlines should revive faster, especially if an effective vaccine is introduced,” he said. They will recover faster because the coronavirus crisis has hit them harder, and the recovery will be sharper from a lower base. However, returning to previous levels of profitability may take longer due to more lasting changes in consumer behavior, he added.