Public and private organizations and the housing sector intend to invest $404.5 billion in construction and machinery and equipment in 2014, according to Statistics Canada, a modest 1.4 per cent increase that indicates economic growth could be tepid this year.
An encouraging 3.9 per cent increase in spending on machinery and equipment to $4.2 billion is forecast, the strongest growth since 2007. This is a sign that businesses are making investments that will improve productivity, says TD economist Leslie Preston.
But there will be a slowdown in construction investment growth to only 0.5 per cent, its slowest pace since the recession. The housing sector remains strong, predicting a 1.8 per cent expansion, but non-residential construction is expected to fall 0.2 per cent.
“Even though today's data are only investment plans they have historically been a pretty good guide to capital spending,” Preston said in a note to investors.
“Therefore, today's numbers can only be viewed as disappointing for an economy that needs investment to pick up to drive stronger growth. After rebounding smartly post-recession, capital spending growth in Canada had cooled recently due to a very weak corporate profit backdrop.”
Drop in spending by utilities, retail
Statistics Canada says the principal drivers for investment spending are the transportation and warehousing, housing and public administration sectors.
But gains in those sectors are offset by anticipated declines in investments by organizations in the utilities, retail trade and health care and social assistance sectors.
Utilities sector spending is dropping by a sharp 4.1 per cent to $30.5 billion, as Alberta and Quebec make deep cuts in capital investment.
Private sector capital spending is forecast to grow 1.3 per cent to $31.2 billion, but public sector spending, especially at the local level, is expected to expand 2.7 per cent to $37.9 billion, a reflection of needed repairs to infrastructure at the municipal level.
Investment growth in oil and gas continues strong, rising by 3.1 per cent to $71.6 billion in 2014. But the pace of growth is slowing, compared to expansion of 6.3 per cent last year.
Oil and gas spending up
The conventional oil and gas extraction industry accounts for more than half of capital spending, up 3.8 per cent to $38.1 billion. Investment in the non-conventional oil industry is expected to rise 2.3 per cent to $33.4 billion.
But mining, a key sector for the Canadian economy, has been seeing a decline in capital investment since mid-2011, because of weakness in metal ore prices.
Across Canada, Alberta is expected to lead spending with a 2.4 per cent increase, followed by Ontario up 2.3 per cent, and Quebec up 2.0 per cent. In New Brunswick investment will rebound 2.1 per cent after two years of contraction. Newfoundland and Labrador, Saskatchewan, Manitoba and B.C. all expect to see investment fall.