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While Canada dodged a recession in the fourth quarter, the good news was once again obscured by a dismal trend that’s been plaguing the economy: weak business spending.

Business investment fell for the sixth time over the past seven quarters, according to Statistics Canada. But when measured on a per-worker basis, the picture is even more grim. Outside of the 2008-09 recession and the COVID-19 recession, real (meaning inflation-adjusted) business spending on non-residential structures, machinery and equipment per worker is at the lowest level since the end of 2004.

Business investment is critical to the economy because it enables companies to grow and help make their employees more productive.

A recent study by Statistics Canada that looked at the business investment slowdown between 2006 and 2021 placed part of the blame on weak competition, in the form of industry concentration and a decline in new companies.

The study also blamed a shift by companies toward investing in more intangible assets such as innovation, intellectual property and brand equity, most of which statistical agencies don’t record as investments.

However that doesn’t explain why the United States is seeing a golden age of business spending, with investment per worker at an all-time high, widening the gap with Canada even further.

“This trend needs to be reversed to support long-term economic growth and to maintain competitiveness with our southern neighbour,” Florence Jean-Jacobs, an economist with Desjardins, wrote in a note. “Although productivity-enhancing investments may be less appealing to businesses in the current high-interest-rate environment, postponing these expenditures for too long will create more pain in the long term through lower growth.”

Decoder is a weekly feature that unpacks an important economic chart.

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