With Bitcoin’s price reaching new highs and demand for the cryptocurrency continuing to soar, experts have been wondering why more companies are not jumping on board. Surveys indicate that while interest in cryptocurrencies is high across a variety of demographics, some sectors are still hesitant to invest despite this exponential growth.
The “best investments right now” is a question that has been asked by many people. There are many reasons why companies are hesitant to invest, even if demand is soaring.
Supply-chain disruptions and doubt about the sustainability of the present economic boom have slowed investment expenditure in the world’s top nations, a trend that might worsen already high inflation.
Businesses all across the globe are reporting shortages of high-demand commodities, and consumer prices have climbed dramatically in recent months. Despite economists’ expectations that businesses would engage in growing capacity, investment expenditure in several of the world’s leading economies has halted.
By mid-year, investment expenditure had recovered from the early-pandemic economic recession, but there were widespread reductions in the three months through September, the most recent period for which globally comparable numbers are available.
According to the OECD, investment expenditure declined in the third quarter in the United States, Canada, Japan, Germany, South Korea, the Netherlands, and Switzerland. Investment expenditure in the Group of Seven most affluent nations declined by 0.8 percent in the second quarter. Furthermore, national numbers that aren’t adjusted for seasonal variances show that China, the world’s industrial superpower, is in decline.
Warehouses in California’s Inland Empire are an important part of the supply chain in the United States. This Christmas season, low warehouse vacancy rates in the region, along with port delays, are creating a perfect storm of issues. Sam Rosenthal/Getty Images
Investment expenditure in the United States has recovered from its low point in spring 2020, and is currently somewhat higher than it was before the outbreak. However, it decreased somewhat in the third quarter of this year.
This indicates that firms held off on investing precisely when shortages were driving to a dramatic jump in consumer prices, indicating that expanding global production capacity to meet the pandemic surge in demand for commodities would take months.
A surge in demand for consumer goods—from computers to bicycles to toys—has outpaced global capacity to produce them, driving up inflation and clogging supply networks that are struggling to produce and transport them to customers.
While many economists predict demand for those items to decline as it becomes safer to use services like entertainment, travel, and hospitality, they also expect enterprises to increase their capacity to provide those things by increasing investment expenditure.
The reasons for the slowdown seem to be many. Price increases, supply-chain issues, and uncertainty about how long the boom in consumer spending will endure are all cited by many firms. Strong demand for products might persist if the pandemic-induced changes in purchasing patterns continue, or it could be transient if consumers return to their pre-pandemic habits.
Even though income has increased by roughly 25% year over year in Wenzhou, China’s southeastern metropolis, Zhu Chaohu, the CEO of an auto-parts firm, said he is hesitant to invest in new facilities or recruit additional staff.
Mr. Zhu, CEO of Zhejiang Tengxiang Auto Parts Ltd, stated, “We simply can’t predict how much longer the robust demand would persist.”
His firm, which employs roughly 100 people, mostly sells ignition switches. Another reason for the company’s caution is that rising raw material prices, from copper to steel, have reduced the company’s profit margin by more than 3% this year.
Wenzhou, China, factory and residential complexes.
Getty Images/Noel Celis/Agence France-Presse
Mr. Zhu, like many other vehicle component suppliers in the region, said he would increase capacity “passively,” or only when the firm obtains new orders, rather than making estimates now. Instead of constructing new factories from the ground up, they’ll likely acquire new equipment and recruit more temporary workers.
Outside of China, this combination of large sales and slow investment is also typical. According to BNP Paribas, capital spending by companies in the S&P 500 index in the third quarter was at its lowest level since 2010.
The drop in capital investment occurred at a time when consumer spending was high, which generally encourages enterprises to invest more in growing capacity. Consumer spending increased by 4.1 percent in the eurozone in the three months to September, whereas investment expenditure declined by 0.9 percent.
Even in uncertain times, some firms want to invest, but are hampered by tight supply chains and rising expenses.
Italian wine exports are expected to surpass pre-pandemic levels this year. The country’s wine farmers, on the other hand, aren’t putting those additional funds to good use.
Matilde Poggi, a winegrower from Cavaion Veronese in northern Italy, claims that many vineyard owners in the area are unable to develop because they are unable to get necessary equipment and supplies.
Ms. Poggi, who is also the president of the European Confederation of Independent Winegrowers, said that their daily costs are rising as well, with prices for cardboard packaging increasing by as much as 13%, metal bottle caps becoming more expensive, and energy suppliers warning of up to a 30% increase in gas and electricity bills.
“People aren’t willing to spend money right now,” she said.
Ms. Poggi began construction on a new warehouse for her own business in July and wishes she could have put it off. Due to current supply-chain issues and general inflation, she will be paying 30% more than she anticipated.
All of these price increases will be passed on to the customer. According to Ms. Poggi, board members surveyed at a recent meeting of her trade association predicted a 3 percent to 5% increase in the price of a bottle, with some predicting as much as 10%.
According to Almonty Industries Inc., a Toronto-listed miner with operations in South Korea, Portugal, and Spain, demand for tungsten, a material used in satellites and semiconductors, is increasing, driving the price up 39 percent from the start of the year to mid-November.
However, the cost of the machinery, steel rods, gasoline, and other materials required to extract it from the earth is growing as well. Lewis Black, the company’s CEO, is also concerned that labor unions would demand wage raises next year; in Portugal, unions have already requested a 14 percent price hike, he claimed.
All of this has led the corporation to shut down half of its global manufacturing. It is investing in a new mine in South Korea, but has opted not to spend the $43 million required to reopen mines in Spain that were shut down last year owing to Covid-19.
“There is a market for raw minerals,” he continued, “but mine running expenses are already beginning to rise substantially.” “We’ve found ourselves between a rock and a hard place.”
On this year’s Black Friday in Florida, shoppers formed a line outside a retailer.
Paul Hennessy/Zuma Press/Zuma Press/Zuma Press/Zuma Press/Zuma Press/
According to a study done by the European Investment Bank over the summer, a scarcity of personnel with the proper skills may have also been holding back investment. Staff shortages were highlighted by almost four-fifths of 30,000 enterprises in Europe and the United States when the EIB asked them to identify the key barriers to executing their investment plans.
Despite the challenges firms face, analysts forecast an increase in investment in the next year, driven by the chance to increase earnings by increasing capacity. Given the pandemic’s twists and turns, especially the introduction of the novel Omicron variety, it is unlikely to be a simple and uncomplicated procedure.
“Uncertainty exists, and it continues to weigh on businesses,” said Debora Revoltella, the EIB’s top economist. “This is even more evident now, as a fresh wave of the epidemic emerges.”
Paul Hannon, Stella Yifan Xie, and Alistair MacDonald may be reached at paul.hannon@wsj.com, stella.xie@wsj.com, and alistair.macdonald@wsj.com, respectively.
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