In this file photo dated May 18, 2021, technicians perform production control tasks at the implant zone in the cleanroom at Fab7 in the Globalfoundries Inc semiconductor fabrication facility in Singapore. (LAURYN ISHAK / BLOOMBERG)

Global companies from noodle makers to semiconductor giants are spending on new plants and machinery in ways they haven’t done for years.

On the supply side, blockages brought on by the COVID-19 pandemic are forcing businesses to invest in new production facilities; calls for a cleaner environment are spurring spending on electric vehicles, batteries and alternative energy; and the big semiconductor crunch has prompted a wave of investment. 

On the demand side, pent up consumer spending is convincing executives that capital is worth outlaying — a sign that business is buying into the world’s economic recovery prospects even as the Delta strain casts a shadow. Fuelling it all are low interest rates and bets they’ll stay that way.

On the demand side, pent up consumer spending is convincing executives that capital is worth outlaying — a sign that business is buying into the world’s economic recovery prospects even as the Delta strain casts a shadow

ALSO READ: Delta surge means this is as good as it gets for global growth

Globally, corporate capital expenditure, or capex, will jump by 13 percent this year, according to S&P Global Ratings, with growth in all regions and broad sectors — especially in semiconductors, retail, software and transportation. Economists at Morgan Stanley forecast that global investment will reach 115 percent and 121 percent of pre-recession levels by the end of 2021 and end of 2022, a much faster recovery than previous downturns.  

“A recovery in business investment is critical for longer-term growth, as capital accumulation is key for lifting productivity growth,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “Once the unprecedented global policy stimulus fades, the world needs business investment and structural reforms to sustain growth.”

With inflation jitters rising, central bank tapering looming and supply chain chaos continuing, the capex surge offers a rare ray of hope for the global economy into 2022 and beyond. It’s also a very different dynamic from the last global crisis of 2008, when austerity and weak investment dragged on employment and wages for years to come. 

Examples of new spending are evident from emerging markets to the world’s biggest companies.

ALSO READ: SE Asia assets go from bad to worse as Delta hurts region

Nepal based conglomerate Chaudhary Group — whose products includes noodles, snacks and beverages and supplies more than 35 countries — is expanding in Egypt to manufacture noodles for the African market. The new plant will make one million packets of noodles a day, employ 500 staff and cost about US$10 million to develop, GP Sah, global business head of the fast moving consumer goods division, said in an interview. The company is also eyeing opportunities in Latin America. “We want to be a global noodle company,” he said. 

Walmart Inc in February said it would invest about US$14 billion this year on areas including supply chain, automation and technology, up from the US$10.3 billion it spent the year before. “Now when we invest it feels very offensive,” Chief Financial Officer Brett Biggs said on an Aug 17 conference call with analysts. “It feels like we’re improving our competitive position. It’s very broad based.” 

In the US, business spending on equipment, structures and software has averaged an annualized 13.4 percent in the year through the second quarter — the strongest pace since 1984. Spending on equipment alone has averaged 14.4 percent over the past year, more than double the average of the 2009-2019 expansion.

“The industrial markets are another one of these markets that I think are in the relatively early stages of recovery,” Craig Arnold, chief executive officer at Eaton Corp, whose products include clutches and brakes, said on an Aug 3 earnings call. “There has been relative under-investment in manufacturing over the last number of years. And so we think that market should do well into ‘22 and really quite frankly beyond.”

Europe is also set for a surge in spending, with S&P Global Ratings predicting a 16.6 percent increase in 2021 — its best year since 2006. Business investment in the UK, which has been suppressed by the nation’s exit from the European Union, has also started to recover, but was still more than 15 percent below its pre-pandemic level at the end of the second quarter.

Working from home and the resulting surge in the digital economy has driven demand for semiconductors, leaving a shortage that is reshaping investment into the sector. South Korea plans to spend roughly US$450 billion, led by Samsung Electronics Co and SK Hynix Inc, to build the world’s biggest chipmaking base over the next decade. 

In Japan, manufacturers facing the chip crunch are leading a recovery in capital investment. Rohm Co, a chipmaker whose customers include Toyota Motor Corp, Ford Motor Co and Honda Motor Co, is “making large investments” for the next fiscal year in addition to 70 billion yen (US$637 million) already set aside for the current year ending in March 2022.

“We will be too late unless we make pre-emptive moves,” Chief Executive Officer Isao Matsumoto said in an Aug 25 interview. The Kyoto-based chip maker has factories in China, Malaysia, South Korea, Thailand and Philippines as well as domestic ones.  “The pandemic presented us with various risks,” Matsumoto said. “We want to disperse our manufacturing bases.”

Another dynamo is climate change, which is forcing companies to retool operations as governments push through clean energy policies. A record US$174 billion was invested in solar, offshore wind and other green technologies and companies in the first half of this year, according to data from BloombergNEF, with much more needed to curb carbon emissions. 

To be sure, the growth dividend depends on the promised spending being delivered. 

READ MORE: SE Asia's factory powerhouses hit by vaccination woes, Delta

There’s a worry that capex will lose momentum as consumer demand cools or that a goods shortage will reverse into a supply glut once the pandemic’s acute phase passes. Economists also say some of the investment may not be as productive as it looks, which would leave much promised jobs and plants looking more like hype than reality.

For now, companies are betting they have more to lose from not upgrading. 

Longer-term investment will be driven by trends such as supply chain diversification or accelerated automation in the services sector as workforces age, according to Karen Harris, managing director of consultancy Bain’s Macro Trends Group in New York. “Many services-oriented businesses now have a no-regrets opportunity to invest for greater worker productivity today,” she said.