Dark days for Canadian business

Statistics Canada released its annual survey of investment intentions Tuesday, and the results show that firms continue to invest less even as governments spend more. While the bloodletting in the oil and gas industry is over, at least outside of the oilsands, all business investment plans still were cut by almost six per cent overall, their fourth straight annual decline. The slump cannot be attributed to developments in one or two sectors; the planned cuts to capital spending were widespread, affecting 10 of the 12 industry groups outside of the public sector.

The Bank of Canada has been waiting forlornly for growth to shift from Canada’s overheated housing market to exports and business investment. Instead of more business investment, we are getting a rapid expansion of the public sector. Investment by the public sector began to expand during the financial crisis, increasing by $21 billion between 2007 and 2010 to offset a $13-billion drop in private investment due to the recession.

Investment by the public sector then levelled until 2014, its growth unnecessary as $50 billion of investment flowed into the private sector, mostly destined for the oil and gas industry and related energy projects such as pipelines. Since the oil-price collapse began in 2014, investment by the private sector has fallen by almost $50 billion, which the public sector took as the cue to boost its capital spending by $18 billion.

The recent weakness of business investment was due to much more than the slump in oil and gas. Investment in manufacturing continues to falter, down $2.7 billion since 2014, while most services remain weak. The slump in manufacturing is especially troubling, since this was the sector that was supposed to pick up in response to the devaluation of our exchange rate. Instead, investment has fallen in 13 of the 18 manufacturing industries.

Investment in Ontario’s manufacturing industry has stagnated since 2014, notably in autos and high-tech, despite a flurry of ribboncutting by federal and provincial politicians claiming energy to labour and of the depressing effect on business confidence of the prospect of more intrusive labour laws just around the corner.

The continuing slump of business investment in Canada is troubling for a number of reasons. It portends a failure to transition from deficit-financed spending by households and governments to exports and business investment. It signals that while the worst for the oil industry is past, overall economic growth will continue to be sluggish. where the business climate is accommodating, not where government investment and regulation continue to encroach on their operations.

These are dark days for the Canadian business community, with left-wing governments installed in Ottawa and across most of the provinces. Just this week, Fortune released its list of the world’s most admired firms. Of the 237 companies that made the list, only one had a Canadian connection (TD Ameritrade). Maybe being known for our resources beats being ignored altogether. It’s time to grow up and realize that having a prime minister who is cool and hip to millennials counts for nothing when firms make investment decisions. It might even hurt when the newly installed U.S. president speaks the language of business fluently.

The only good news in the investment intentions was that there is little direct evidence of a wholesale stampede of investment leaving Canada for the U.S. An exodus is possible, if firms become convinced that trade barriers will hamper exports to the U.S. and decide to set up or expand their operations south of the border. Alternatively, firms may be waiting to see the tangible impact of Trump’s promises to create a more businessfriendly environment by slashing tax rates and regulations.

At a minimum, the investment data show that while refugees may find Canada more attractive after the arrival of a Trump administration, investors categorically do not. And that should concern everyone interested in our long-term economic growth.