Markets were bouncing back from the latest round of U.S. tariffs levied against Chinese imports, but the global capital expenditure market may not be so lucky, according to a note from JPMorgan on Thursday, July 12.
Global capex growth slowed to 5% in the first half of 2018 after growing at a pace about double that in the second half of 2017, according to JPMorgan. That level is slightly below the firm's expectation of 6% growth for the year.
The robustness of the global business investment cycle has been one of the key cogs in the investment bank's bullish outlook on the global economy.
"The threat of a trade war looms large in the outlook. The risk is that fear builds as trade tensions intensify," wrote JPMorgan's Joseph Lupton.
The robust global investment market of 2017 was fueled by strong global corporate profit growth, according to JPMorgan. That growth continued into the first quarter of 2018 as global corporate profits jumped 20% over the previous 12 months.
But those profits, which induce confidence, Lupton said, won't be enough to get businesses to invest in the same manner they did last year.
"An important assumption in our 2018 capex outlook is that business confidence only moderates from its very high 2017 level. We have highlighted, however, that the first threat from trade tensions is a hit to confidence, which could, in turn, damp business capex and thus overall GDP growth," Lupton wrote.