Financial bottlenecks slowing investment growth

Although gross fixed capital formation is expected to increase again this year, its growth is likely to be lower than it was last year. This is shown by the results of the latest KOF Investment Survey from autumn 2022, according to which survey respondents expect their fixed capital investment to rise by a nominal 3.9 per cent in 2023. The survey’s results indicate that growth of 5.3 per cent is expected for last year. The fact that investment growth is likely to weaken in the current year is not surprising in view of the energy crisis and rising interest rates. What is surprising is the resilience of investment to the gloomy economic situation. Investment expectations for the current year do not reveal any recessionary tendencies, which is consistent with KOF’s economic forecast from December 2022.

Industry and the construction sector in particular are slowing their pace of investment compared with last year. Having increased their investment by 8 per cent in 2022, companies from the manufacturing sector plan to raise it by only 2 per cent in the current year. Firms in the construction sector even plan to reduce their investment by 3 per cent in 2023 after having raised it by 3 per cent last year. Only in the services sector is investment growth expected to prove robust. Investment here is predicted to rise by around 5 per cent, similar to last year.

The planned capital expenditures will primarily go towards new buildings and the conversion of commercial and business premises. 44 per cent of survey respondents intend to increase their construction investment this year (compared with 31 per cent last year, according to the previous survey in autumn 2021). The proportion of companies that plan to invest in research and development this year has also grown significantly on balance. The number of firms intending to increase their investment in equipment and machinery is roughly the same as it was last year (38 per cent).

Uncertainty and financial bottlenecks weighing on investment prospects

The investment figures collected for the year 2023 are merely plans whose realisation was not yet certain at the time of the survey. In order to establish the precision of the rates of change resulting from these plans, companies were asked about the certainty of realising their planned investment. In autumn 2022, just under 12 per cent of firms rated their investment plans for 2023 as uncertain. This is around a third more than in the previous year and reflects an investment environment that is proving challenging in view of heightened geopolitical tensions and a gloomy global economic outlook.

The survey’s results show that the financial resources available and the expected earnings situation in particular are having a much less positive impact on investment plans for 2023 than they did a year ago (see chart G 9). Just under one-fifth of the companies surveyed say that the financial resources available will either slightly or significantly dampen their investment this year. In autumn 2021 this was the case for only 9.6 per cent of firms. While this trend can be observed in all sectors, it is most pronounced in services.