Firms, governments plan more investment in 2012

Canadian businesses and public organizations plan a modest increase in capital investment this year, according to data released by Statistics Canada Wednesday.

Investment expected to reach $394 billion in 2012, up 6.2%

The construction sector accounts for the biggest share of planned capital investment,up eight per cent from last year. (CBC)

Canadian businesses and public organizations plan a modest increase in capital investment this year, according to data released by Statistics Canada Wednesday.

The federal agency says Canadian private and public sector investment is expected to reach $394 billion in 2012, up 6.2 per cent from 2011.

Most of that will go into construction, up eight per cent, with planned investment in machinery and equipment two per cent higher than last year.

The mining, oil and gas sector is expected to drive over one-fifth of business investment in 2012, with capital expenditures expected to increase by 18 per cent.

Manufacturing investment is expected to slow to six per cent, following a 21 leap last year.

Investment spending in Alberta is proportionally higher than in any other province, due mainly to the energy sector.

Government investment to rise

The big surprise is that despite all the talk about austerity, the agency calculates governments at all levels will likely jack up capital outlays by 6.3 per cent from this year's anemic 1.1 per cent.   

"To me that's the real notable feature of this report," said Douglas Porter, deputy chief economist for BMO Capital Markets.   

"We've only had Alberta's and B.C.'s budgets so far, so things can change. But it's a positive sign. We'd been assuming an outright public sector decline in capital spending this year."   

A 14.6 per cent hike in capital projects for utilities was the key reason for the upswing in the government sector, with expansion in electricity generation, transmission and distribution in both British Columbia and Alberta leading the way.   

But there was also intentions for a 3.8 per cent hike in public administration spending, about half of that coming from municipalities.   

Ottawa, which announced Wednesday it will bring down its next budget March 29, has announced it plans to cut program spending by at least $4 billion by 2014, but that may be separate from capital expenditures, which include everything from buildings to computers.

Level of spending raises competitiveness concerns

Total investment there is expected to be $97.8 billion, up by nine per cent and almost 25 per cent of the national figure.

Investment intentions in sectors related to domestic spending were lower, with finance and insurance down 14.2 per cent, real estate and rental and leasing down 11.2 per cent, management of companies off 19 per cent, accommodation and food services down 8.4 per cent and other services expected to lower capital spending by 8.1 per cent this year.

"Low interest rates in combination with a lower corporate tax rate should continue to support business spending," TD economist Diana Petramala said in a commentary, "despite what appears to be a weakened global backdrop."

But Petramala said firms do not appear to be investing in technologies that would increase productivity and Canada’s international competitiveness.

"Capital expenditures are still 12 per cent below levels experienced in 2000, before the Canadian dollar began its ascent to parity," she said.

"In the face of a high loonie, investment in machinery and equipment could be the key to helping manufacturers compete more strongly on productivity and costs."

With files from The Canadian Press