Hoarding cash

Issue section: 

Big corporations are cash rich. The 2,000 biggest companies by capital expenditure are sitting on a cash mountain of gross £2.6 trillion.

But they aren’t spending it on new rounds of capital investment despite all the talk of an economic recovery.

Standard & Poor estimate that such spending is likely to fall by 0.5 percent this year in real terms. This follows a 1 percent decline in 2013.

And in “emerging markets” such as China, Brazil, Russia and India, the rate of decline in capital investment is even faster, falling by 4 percent in 2013 with a similar decline likely this year.

One problem is that the largest 2,000 companies are also highly indebted. Globally, net corporate debt rose from £5.9 trillion in 2012 to £6.5 trillion in 2013.

“There was a lot of hope that a clear improvement in the economic cycle might trigger the second stage when companies feel more comfortable and start spending their cash,” Gareth Williams, corporate economist at Standard & Poor’s in London, told the Financial Times.

“For a variety of reasons this isn’t going to happen and it raises questions about the robustness of the recovery this year.”