Business investment in Canada is projected to edge up slightly this year, although the continued reluctance of mining companies to spend money is weighing on the figures.
According to a Statistics Canada survey released Wednesday, private and public spending on construction, machinery and equipment will rise just 1.4 per cent this year, to $404.5-billion, slightly below the also-weak 1.5-per-cent increase of last year.
Private investment will grow only 1.3 per cent, up from a meagre 0.2-per-cent increase in 2013.
Along with exports, business investment is a key source of economic growth, and the sluggish state of spending has been a drag on expansion for more than a year. In 2012, capital spending in Canada rose at a much more robust 7.2 per cent. This years spending projections are the lowest since the end of the recession.
“This is indicative of the economic environment and the uncertainty that is out there right now,” said Benjamin Reitzes, senior economist at Bank of Montreal. Projections for the health of the economy “aren’t good enough to get business to start spending,” he said. “They need to see better demand on the ground before they are willing to open up their bank accounts.”
The Statscan report shows a few sectors are spending more freely than others. The transportation and warehousing group is planning to boost capital spending by almost 15 per cent this year, while manufacturing is also showing a moderate boost of 4.7 per cent. Construction spending is projected to be up 3.7 per cent.
But spending in the mining and oil and gas extraction businesses will be almost flat, with growth forecast at 0.1 per cent. The oil and gas portion of that sector will see a rise of 3.1 per cent, but this will be pulled down by a significant decline of 14.8 per cent in mining spending.
The reluctance of mining firms to make capital investments is mainly a function of weak commodity prices, said Steve Letwin, chief executive officer of gold mining firm Iamgold Corp. The drop in the price of gold late last year to the $1,200 (U.S.) range “scared a lot of people” who then pulled back on their capital spending plans. A the same time, he said, junior players in the mining industry are having trouble raising equity in the current market, “so a lot of development projects that were going very strong a number of years ago have been slowed up significantly.”
This weak spending will remain until mining firms feel more confident about the direction of prices for base metals and precious metals, Mr. Letwin said.
Still, there are some bright spots in the business spending numbers, said Toronto-Dominion Bank economist Leslie Preston. She cited the projected 3.9-per-cent growth this year in investment in machinery and equipment, which is a “positive for Canada’s abysmal productivity record.”
Recent solid profit numbers also suggest that corporate finances are “on the mend,” she said. “This bodes well for investment spending to gain momentum later in 2014, as business confidence improves in line with better U.S. growth.”
In the public sector, StatsCan said spending is expected to rise 1.9 per cent this year, a sharp decline from the 6.6-per-cent increase in 2013.
On the negative side, health care and social assistance spending is expected to fall 7.9 per cent this year. Spending on public administration, on the other hand, is expect to rise by 2.7 per cent this year.
Mr. Reitzes said the soft public spending is a function of governments’ attempts to trim their deficits. But this should change over time, as those deficits are eliminated. “Next year, from a federal perspective at least, they will have a little more money in the coffers to spend if they choose to,” he said.