Combination of capex needs and slow economy will reduce corporate flexibility.

Economic weakness in Europe and the need to keep investing will cause European companies in aggregate to generate negative free cash flow this year, according to Fitch. The rating firm says it has revised its forecast for 2013 FCF from positive $27 billion at this time last year to negative $9 billion now.

“Our latest forecast indicates that some companies have reached the limit of their ability to minimize capex while remaining competitive or are facing significant investor opposition to dividend cuts,” Fitch writes in a new report, “EMEA Corporate Forecast Evolution.”

The change in its forecast comes from negative nominal flows in industrials, utilities and transport. Fitch forecasts that natural resources and consumer and healthcare companies will see improving FCF.

Telecom, media and technology company FCF is being hit by rising competition and worse-than-expected austerity cuts on companies such as Portugal Telecom and Telecom Italia. Competition and demand mean these companies need to invest heavily. Utilities are hurting due to weaker gas and electricity demand and higher gas import prices.

Fitch worries that declining FCF will reduce companies’ ability to manage periods of volatility without eroding credit quality. However, in the medium term, it expects FCF to improve in line with the economy, and says that most companies could still cut capex and dividends if they needed to in a crisis.