Firms are reluctant to commit to investments in Ontario and Quebec with uncertainty surrounding NAFTA talks.
OTTAWA — Failure to transition away from household and government spending means the Canadian economy is still overly-reliant on debt for growth, Munk senior fellow Philip Cross said with the release of the MacDonald-Laurier Institute’s Quarterly Economic Report.
MLI criticizes Budget 2018 as doing little to quell concerns over the federal deficit and the “lukewarm” business investment climate, especially in Ontario and Quebec. Abetting this worrisome trend is that Canada’s economy has failed to shift towards a more sustainable economic foundation built on exports and business investment.
Manufacturers plan to invest $16 billion in 2018, up slightly from the year before but still well below the $16.5 billion invested in 2016 and $18.7 billion in 2015. Most of the increase was in petroleum refineries and chemical plants in Alberta. The report notes investment in factories in Central Canada remains little changed, despite a low dollar and high capacity utilization. Firms are only willing to invest more in machinery and equipment, which does not require the same commitment to remaining in Canada as construction.
Indeed, the report observes manufacturers are especially reluctant to commit to constructing new facilities. Construction has fallen every year from $6.2 billion in 2014 to just $3.4 billion in 2018.
MLI sees this as a reluctance of firms to commit to investments in Ontario and Quebec amid the uncertainty surrounding free trade talks with the US and provincial elections in both provinces this year that may pave the way for governments more receptive to the business communities.
“The continued lethargy in exports and business investment appears related to disenchantment with a wide range of government policies perceived as anti-business,” writes Cross. “The continuing indifference of governments in Canada stands in stark contrast with developments in the US, where tax reform lowered corporate taxes enough to erase Canada’s long-standing advantage.”
Click here to see the detailed report.