Investment in equipment and software is expected to grow 2.7% in 2016 according to the Q2/16 update to the 2016 Equipment Leasing & Finance U.S. Economic Outlook released by the Equipment Leasing & Finance Foundation.

The forecast is a dip compared to the projection the ELFF put forth in December, when it estimated a 4.4% growth rate. The most recent report predicts that equipment and software investment will expand modestly in 2016, as persistent headwinds, particularly a weak global economy and low commodity prices, curb business confidence and spending.

“Growth in the volume of financed equipment slowed over the last quarter, reflecting a similar moderate growth pattern in overall equipment and software investment,” said Ralph Petta, president of the ELFF and president and CEO of the Equipment Leasing and Finance Association. “Low oil prices and weak global demand appear to be largely responsible for business owners’ cautious approach to capital spending. Also, anecdotal and other data point to a slight erosion of portfolio quality, with delinquencies and losses ticking upward.”

The U.S. economy is expected to grow by a moderate 2.3% in 2016, roughly in line with the pace of growth over the past two years. Continued gains in the labor market and income, along with service sector strength, should drive growth this year. Weaknesses in the manufacturing and energy sectors are likely to persist, and combined with a soft global economy (particularly China’s), will hurt U.S. exports.

Recent turbulence in the world economy and financial markets has invited greater caution from businesses and consumers, and financial stress has ticked up in 2016. However, there is little evidence of major financial risks in 2016 and both consumers and businesses are expected to gradually increase their borrowing as headwinds fade. The Fed remains prepared to slowly raise rates this year, which may pull forward some investment and relieve some of the pressure on margins for equipment finance firms.