Posthaste: Business investment in Canada is about half what it is in America, study says – Financial Post

Article content

Good morning!

Article content

Business investment in Canada is about half what it is in the United States and is lower than in other OECD nations, says a new study.

“Business investment is so weak that capital per member of the labour force is falling, and the implications for incomes and competitiveness are ominous,” says the C.D. Howe Institute report.

Prices are rising, but real incomes are not. The study says among the likely reasons for that, which the Bank of Canada itself has highlighted, is weak business investment and consequently low productivity.

“Investment per available worker lower in Canada than abroad tells us that businesses see less opportunity in Canada, and prefigures weaker growth in Canadian earnings and living standards than in other OECD countries,” said William Robson, one of the authors.

Article content

New business investment per worker in Canada was slightly over 50 cents for every dollar invested in America per worker in 2021, the lowest it has been since the beginning of the 1990s.

Canadian business investment also falls short of other peer nations. Projections show that Canadian workers will only see 73 cents of new capital for every dollar in other OECD nations, excluding the U.S., in 2022, said the study.

The report calculates that there will be $20,400 of new capital per worker this year for OECD countries, aside from the U.S., compared with $14,800 in Canada.

So how did we get in this state?

The oil crash in 2014 didn’t help. Capital spending in the mining, quarrying, and oil and gas extraction industry reached its peak then and has been sliding ever since. From 2014 to 2021, investment in structures and machinery and equipment fell 61 per cent and 53 per cent, respectively.

Article content

The fact that capital spending has not rebounded during this year’s oil boom reflects both a “hostile” regulatory environment and investors who are skeptical about the future of fossil fuels, said the report.

In 2016, Canadian oil and gas workers were receiving almost as much investment per person as their American counterparts.

By 2020, they were getting barely more than half as much.

Another contributor to low business investment in this country is the oversized share going to residential investment, says the report. Consumption and residential investment together have been greater than 85 per cent of GDP for an “unprecedented” seven years.

Other conditions discouraging business investment, according to C.D. Howe Institute, include:

Article content

The report says that the federal government’s own 2022 budget flags the threat low business investment poses to living standards.

It cites an OECD forecast that projects that unless investment increases, Canada will have the lowest per-capita GDP growth of any OECD country between 2020 and 2060.

Article content

“The prospect that Canadians will find themselves increasingly relegated to lower value-added activities relative to workers in the United States and elsewhere, who are raising their productivity and earnings faster, should spur Canadian policy makers to action,” said the report.

_____________________________________________________________

Was this newsletter forwarded to you? Sign up here to get it delivered to your inbox.
_____________________________________________________________

HOPE BLOOMS A young woman takes photographs of burnt cars with painted sunflowers in Irpin, Ukraine. The destroyed cars were collected from the area following Russia’s assault on Kyiv’s suburbs, from which they ultimately retreated. Photo by Alexey Furman/Getty Images

Article content

___________________________________________________

Article content

___________________________________________________

_______________________________________________________

_____________________________________________

__________

If you thought inflation was bad in Canada, spare a thought for the poor Britons. U.K. inflation in July beat expectations for the third month in a row, data showed last week, this time breaching 10 per cent. That’s the first double-digit increase since February 1982.

Article content

“If there were any doubts that the BoE would unleash another aggressive hike, this number put those to rest,” wrote BMO senior economist Jennifer Lee about the chart below.

Nor is that the peak, Lee said. “Look for over 13 per cent inflation in the fall, if the BoE is correct.”

__________________________________________

Cancelled and delayed flights, lost baggage, and incredibly long wait times are some of the issues that Canadian travellers are experiencing this summer.

Despite Canadian airlines reducing their summer flight schedule at the end of June, many travellers are still having trouble receiving compensation for travel disruptions. If that sounds like you, our content partner MoneyWise has what you need to know to get compensated if your flight is cancelled in Canada.

____________________________________________________

Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:

Array