Unlike 2019 in which earnings expectations started the year too high, in 2020, we believe expectations are more rational with 4-5% revenue and 8-9% cash flow and earnings growth. Technology oriented firms should grow at a much faster pace after the rationalization of inventories in 2019 vs. orders as well as the ramp expected in 5G related spending. Conversely, the other end of the growth spectrum includes industries that are still oversupplied for the level of demand; industries such as Autos and Construction Machinery. Accordingly, we expect more capital investment from Technology and Communication Services companies with little to no growth in capital investment from traditional industries like Manufacturing and Energy. Overall, we expect capex to grow a modest 2-3%.
With this level of capital investment and an outlook for GDP growth that is relatively tepid vs. ample global productive capacity, in addition to the pressure placed on firms by the credit rating agencies to reduce debt, we expect more companies to deleverage this year despite historically low interest rates. The Duke University CFO Global Business Outlook Survey supports this view with 59% of respondents strengthening their balance sheet and 49% increasing liquidity. An increase in debt financed M&A would derail this but in an election year, we don’t believe that is likely given the high level of uncertainty. Lastly, while some companies may embark on debt financed share repurchase programs, we do not expect this for the majority unless equity market volatility increases. After more than five years of rising and elevated debt leverage, we believe 2020 is finally the year it falls.