What's Happening

We forecast rated companies' capital expenditure (capex) growth globally will decelerate to 4.2% in 2025 from 5.5% in 2024.   S&P Global Ratings' capital spending forecasts for the 3,400 corporates and utilities that we rate around the world help us better understand regional and industry-level sources of investment growth and decline.

The technology and utilities industries, which rank among the most capital-intensive, will likely continue to increase spending in 2025 more than others. Despite persistently high interest rates, capex for innovative technological capabilities such as AI, energy production, and transport efficiency have a good economic rationale. Investment continues, albeit with renewed sensitivity to interest rate changes and the business cycle.

Meanwhile, we expect other historically big spenders such as telecommunications and metals and mining companies will cut expenditure this year, while those in oil and gas and consumer products will increase capex at slower rate.

Why It Matters

Global capital spending supports capital goods companies' sales growth.   We believe a 4.2% increase in global capex in 2025 will contribute to overall capital goods industry revenue improvement of about 4%. Aftermarket, replacement parts, and maintenance, repair, and operations spending are other key sources of demand for industrial manufacturers. This is, however, generally reported as operating, rather than capital, expenditure.

We think capital goods companies will produce to end-market demand in 2025.   While excess inventories were a headwind in 2024, manufacturing supply chains have mostly normalized, and we believe companies enter 2025 with less equipment in inventory and downstream channels. This destocking likely kept 2024 capital goods industry revenue about flat despite global capex increasing 5.5% as spending normalized following some underinvestment and production challenges in 2022-2023.

Which industries are hot, and those that are not.   We're looking for sectors that spend the most, have high capex intensity demands, or are expanding quickly (charts 1 and 2). Our analysis highlights a few public policy priorities and gives our forecast some additional context, particularly the capital decisions made during recovery from the COVID-19 pandemic.

Chart 1

Chart 2

Megaprojects likely continue.   We anticipate that capex growth in the Americas, driven by the U.S., will exceed that of Europe, the Middle East, and Africa (EMEA), and Asia-Pacific. To promote U.S. President-elect Donald Trump's strategic priorities such as rebalancing trade and manufacturing, energy security, and defense, the new administration will likely amend recent policy-driven spending--where it can. However, these multiyear investments are supported by fiscal stimulus at several levels of government and driven by technological change, so we assume most will proceed. This spending could moderate a cyclical deceleration in revenue growth for interest-sensitive U.S. capital goods companies.

EMEA prioritizes energy.   We forecast utility investment for rated companies will increase more than 10% in 2025 or 60% higher than 2022. EMEA oil and gas investment will be flat in 2025. However, we estimate 2024 capex was 28% higher than in 2022. We believe this illustrates Europe's challenge securing reliable and green sources of energy.

Asia's technology industry remains its bright spot.   Though industry capex as a share of revenue will likely remain stable in 2025, revenue growth of almost 10% will boost investment for this industry more than for any other. We think spending in the region's capital-intensive utility and oil and gas industries will remain near that of 2024, which we view as elevated compared with 2022.

Tight U.S. monetary policy is a risk to our capex forecast.   In all but one Federal Reserve tightening cycle since 1980, U.S. manufacturing was flat or declined in real terms (chart 3). We anticipate the federal funds rate will remain above our assumed neutral rate of 3.1% until the fourth quarter of 2026. This could cool the capex cycle and capital goods industry growth, particularly for manufacturers of long-life heavy equipment.

However, it takes time for firms to adjust budgets, so any capital spending weakness could still lag the interest rate cycle peak by a year or two.

Chart 3

What Comes Next

Big data, big power, big spending.  High technology and regulated utilities lead our forecasts for capex growth in 2025, highlighting the juggernaut of multiyear investments in data and energy transition. S&P Global Ratings expects annual spending for traditional AI (machine learning) and generative AI combined will expand to nearly $650 billion by 2028 from less than $200 billion in 2023--a compound growth rate in the high-20% area. We also estimate incremental power demand from data centers will reach 150-250 terawatt hours between 2024 and 2030, which would require roughly 50 gigawatts of new generation capacity--and approximately $60 billion of investment in generation and $15 billion in transmission (see "Data Centers: Rapid Growth Creates Opportunities And Issues", published Oct. 30, 2024).

Companies such as Vertiv Group Corp. that serve data center construction could increase revenue by double-digit percents in 2025. We expect less demand pressure on heavy equipment manufacturers that provide backup power to serve the data center industry such as Cummins Inc. and Caterpillar Inc. than on those that sell more to weak agriculture and sluggish construction markets. Power demand will energize multi-industry manufacturers such as Hubbell Inc., Eaton Corp., and Schneider Electric S.E. that manufacture electrical grid equipment.

Telecoms dial in spending.   We expect slightly lower capital spending in the large, capital-intensive global telecoms sector. In the U.S., modest capex increases will be driven by fiber-to-the-home (FTTH) growth instead of upgrades to the fixed wireless access (FWA) network, which already covers most of the country. However, remaining FTTH opportunities such as expanding the network to sparsely populated areas are less profitable than completed projects and could proceed more slowly. Spending related to the Broadband Equity, Access, and Deployment Program should increase in 2025, but the timing and magnitude remain uncertain.

We think large owners of FWA and FTTH networks will continue to purchase equipment from manufacturers such as Custom Truck One Source Inc. (bucket trucks), but growth will likely be low in 2025. We also expect manufacturers such as EnerSys that sell products that go into the networks will also see only modestly better demand in 2025. Meanwhile, distributors such as WESCO International Inc. will continue to contend with a soft demand environment.

Financial discipline remains a priority for oil and gas companies.   We forecast capex growth of just 1.4% in 2025. We assume West Texas Intermediate crude oil prices of $70 per barrel and Brent crude prices of $75 per barrel. This should keep U.S. upstream, midstream, and downstream capex roughly flat, as financial markets expect these companies to generate cash and return it to shareholders. By contrast, U.S. investment in liquefied natural gas export capabilities likely will increase as global demand remains high and the incoming Trump administration smooths the path to build related infrastructure. Outside the U.S., we think energy security concerns will support modest spending increases.

The fortunes of the oil and gas industry have less impact on capital goods companies than 10 years ago since manufacturers have divested product lines with more cyclical and volatile patterns of demand. That said, we forecast continued solid demand for companies that serve the industrial flow control market, including Flowserve Corp. and Indicor LLC, and distributors such as DXP Enterprises Inc. and MRC Global (US) Inc. Exposure to oil and gas could be a modest headwind for more diversified manufacturers such as Caterpillar, but other end markets are more likely to have a greater influence on performance.

Related Research

• Data Centers: Rapid Growth Creates Opportunities And Issues, Oct. 30, 2024