In more ways than one, the economic downturn has been Canada’s time to shine. Now we can add climbing business investment to a bragging list that already includes a rock star central banker, a stable financial system and a relatively strong employment rebound since the downturn.
Canada is on track to spend more on capital investment per worker than the average in OECD countries in 2012, the best relative performance since collection of this kind of comparative data began in the early 1990s, according to a report released last week by the C.D. Howe Institute in Toronto.
The expectation that Canadian businesses will invest $1.05 per worker compared with $1 across the OECD this year indicates a big improvement from the years between 2001 and 2005, when Canada invested an average of just 94 cents per worker, write authors Benjamin Dachis, a senior policy analyst, and William Robson, president of the C.D. Howe Institute.
“A good 2012 performance would be particularly good news because employment in Canada fell less during the slump and recovered more afterward than in many other countries, so Canada is spreading its capital investment over a greater relative number of workers,” the authors write.
A main barrier to even higher levels of business investment is the amount of money tied up in housing construction. In the late 1990s, residential investment made up 26 per cent of non-government capital spending. It now sits at 37 per cent. The drive to build homes is likely crowding out other business investment, the authors say.
In addition to helping avoid a housing market crash, the federal government’s new, more restrictive mortgage rules may also have the welcome effect of boosting a wider range of business investment.
But while Canada’s performance recently is good relative to others, the authors are quick to point out the country’s gains are being measured against the weakened economies in the U.S. and Europe.
Canadian businesses continue to invest amid the global slowdown, and the domestic business environment is relatively healthy, but Canada is no “investment superpower,” they say.
Canadian businesses still invest less per worker than the United States – the authors predict 2012 figures will show 91 cents compared to every dollar per worker invested in America. But that is still an impressive gain from Canada’s 88-cent average in the late 2000s.
Where Canada really needs to make strides is in provinces such as Nova Scotia, Quebec and Ontario. Not surprisingly, resource-rich Alberta, Saskatchewan, and Newfoundland and Labrador are doing a lot of the work to pull up the national average investment.
In 2010, Alberta businesses invested close to double the amount per worker as compared with U.S. firms in 2010 at $1.93. The authors forecast that in 2012, Alberta businesses will invest $2.05 per worker for every dollar per employee invested in the U.S.