Manufacturers’ reluctance to invest could derail Canada’s economic momentum

OTTAWA—With energy sector capital spending running of fumes and a sluggish business investment climate for most other Canadian industries, a new Conference Board of Canada briefing warns the growing unwillingness to spend could derail the country’s economic growth.

Within the manufacturing sector in particular, the think tank said capacity constraints could present significant problems when demand increases.

“For the past year, we at the Conference Board have stressed the need for a rebound in business investment to support Canada’s economic growth,” Matthew Stewart, associate director of Economic Forecasting, said. “If non-energy investment does not rebound over the coming months, capacity constraints in some manufacturing industries could impact future growth.”

Despite running at or near full capacity, the Conference Board found manufacturers across all industries are expected to reduce their capital expenditures by 10.9 per cent this year. Particularly troubling, the industries that have contributed most to Canada’s industrial growth over the past several years—the transportation equipment, wood products, food, primary metal and paper manufacturing segments—are expected to post worse-than-average investment declines.

Citing weak market demand, restrictive government policies, a shortage of qualified staff and the depreciation of the Canadian dollar, business leaders said they are likely to slow spending this year.

While investment is expected to pick up in the second half of 2016, bolstered by strong U.S. demand, the think tank said the continued lack of investment has the potential to “severely limit Canada’s future growth.”