Capital spending in Canada is expected to hit a record in 2020 that is entirely driven by construction activity, but also shows ongoing weakness from private-sector companies.
Non-residential capital expenditures are expected to climb 2.8 per cent to $275.5-billion, Statistics Canada said Thursday, based on a survey of 25,000 organizations from the public and private sectors. That followed growth of 1.7 per cent in 2019 and 9.8 per cent in 2018. Spending on construction will rise 4.5 per cent to $178.6-billion, while expenditures on machinery and equipment will edge lower by 0.2 per cent.
If those plans come to fruition, total spending would surpass a nominal high set in 2014, before resource companies slashed investments following the commodity-price crash.
Most of this year’s increase would come from a $6-billion bump from the public sector. Indeed, two recently tabled provincial budgets point to a ramp-up in capital spending by governments. Nova Scotia could see capital spending top $1-billion in its coming fiscal year, with considerably higher investments aimed at schools and roads. British Columbia’s budget this month included plans for a record $22.9-billion in infrastructure spending over the next three years.
Transportation and warehousing was a standout sector, with spending set to grow 9.3 per cent to $44.3-billion, supported by anticipated gains in transit and ground passenger transportation.
“Healthy public sector spending can be a good thing, particularly if, as appears to be the case, it is on productivity enhancing measures such as improved transportation infrastructure,” said Brian DePratto, senior economist at Toronto-Dominion Bank, in a research note.
However, the private sector is set for a tepid increase of 0.9 per cent, the third-weakest growth of the past decade (the two years after the oil-price crash saw the worst showings.) Total spending of $177.6-billion would be lower than it was in 2013, even before accounting for inflation.
Statscan’s survey was conducted between Sept. 18 and Jan. 13. The U.S. House of Representatives approved the new North American trade deal in December, and it was signed into law in late January, easing a concern that had weighed on business sentiment. However, the survey period didn’t overlap with widespread knowledge of the new coronavirus, which is now nearing pandemic status.
“Such a modest outlook even ahead of the latest economic headwinds provide yet another sign that we’re likely in for a challenging year when it comes to economic growth,” said Mr. DePratto.
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