This turnaround carries big implications for stock-picking. The stock market recovery since 2012 has been led by retailers, pub companies and other consumer sectors. If the stock market follows the economy, the next leg of the recovery will be led by software providers, engineers and other business suppliers.
That's a big 'if': the companies of the FTSE 100 index famously make some 70 per cent of sales overseas. Just as their growth is currently being held back by exposure to weaker foreign economies and currencies, the rebound in UK investment spending may benefit foreign groups more than British ones.
Yet capital spending is also showing signs of picking up across the developed world, notes a recent report by Barclays (BARC). Business confidence, which tends to anticipate capital spending by about a quarter, is at its strongest for at least 12 years in the UK. But it is also positive in the US and recovering steadily in the eurozone.
Barclays identifies three global sectors likely to benefit from this trend. The first is industrials, including support services as well as engineering. Extrapolating from past trends, analyst Dennis Jose calculates that current OECD forecasts for capital spending imply earnings growth of 20 per cent over the next few years. That's considerably higher than the current analyst consensus of about 10 per cent earnings growth - suggesting scope for big upgrades.
The other sectors are technology and banks. "There has been a very strong relationship in the past between capital spending and lending," says Mr Jose. "Some argue that the relationship has broken down because of the blockages in the European banking system, but we don't agree." This point is particularly relevant in light of the monetary stimulus announced by the European Central Bank last week, which was aimed at boosting bank lending - and, by extension, capital spending.
The UK stocks Barclays has placed in its 'capex recovery basket' are: Lloyds Banking (LLOY); high-tech equipment suppliers Spectris (SXS) and Renishaw (RSW); industrial property landlord Segro (SGRO); and business services groups Wolseley (WOS), Ashtead (AHT) and Intertek (ITRK).
So what are the risks? Emerging markets are a topical one. China, which is trying to rebalance its economy away from investment towards consumption, accounted for 13 per cent of Spectris's sales last year; for Renishaw the share is as high as one-fifth. For these companies, a capex recovery in the west may simply replace dwindling business in the east. Yet such fears are probably exaggerated: growth in China is softening, not collapsing. A eurozone recovery would still be a meaningful shot in the arm.
Another stumbling block is valuations. The UK engineers, in particular, carry punchy stock market ratings, their shares trading hands at about 18 times 2014 earnings. But if there's little value in the stocks, there is plenty in the underlying markets. Across the developed world, gross fixed capital formation (a key measure of investment spending) looks very depressed. In the UK, it now accounts for 14 per cent of output, down from 18 per cent in early 2008 and the lowest level since at least the 1950s. The picture is similar, if less extreme, in the US and the eurozone. It's true that managers remain reluctant to talk up any recovery, which makes analysts reluctant to factor it into forecasts. But when it comes, upgrades will inevitably follow, bringing down those apparently expensive earnings multiples.
A final objection is that this recovery argument is not new: investors have been waiting for capital spending to bounce back for some three years. Among them is Roland Arnold, co-manager of the £2bn BlackRock UK Special Situations fund, which has a heavy overweight position in industrials. "It's a theme we've been playing for some time," he says. "With hindsight, we can see why it hasn't worked yet: the political climate hasn't been right and growth has been weak, so companies have managed with what they've got.”
Yet now the fund manager is more convinced than ever that investment spending will pick up - to the benefit of companies such as Brammer (BRAM), which distributes bearings, hydraulics and the likes to European manufacturers. "We finally have the combination of a clear recovery and strong balance sheets. For the first time, both these drivers have come together."
