The Canadian economy as a whole urgently needs increased business spending. Unfortunately, according to a C.D. Howe Institute report the amount of business investment happening varies widely across Canada’s provinces, helping drive robust growth in some provinces while barely outpacing public spending in others,.

The imbalance is another indicator of the growing gap between Canada’s provinces that are resource-rich and which attract high levels of business investment — and those whose economies have non-resource-related foundations, such as Ontario and Quebec, both manufacturing-oriented provinces.

Business investment is currently a significant issue in Canada because the Bank of Canada has identified it as a key driver of growth in the coming months. This is because neither consumers nor the government sector are able to contribute as much as in the past as they struggle with deficits and high debt levels.

In Quebec, Nova Scotia, Prince Edward Island and New Brunswick,  public investment grew to almost equal the amount of private investment. Ontario and Manitoba’s public investment is over half of the level of private investment. However, the C.D. Howe report found that in Alberta, Saskatchewan and Newfoundland, private-sector investment has more than doubled relative to public-sector investment in recent years, and private-sector investment represents between 10% and 26% of GDP in these provinces,.

The study says there are significant long-term positives from business spending, as it commits a firm to a strategic plan going forward. “Large investments such as the oil sands, industrial plants or large office buildings require years of planning and building before completion,” it says. “The commitment to invest is also a good indicator of a firm’s willingness,” it adds.

The study says the relationship between public-sector investment and economic growth is “more ambiguous.” It says some types of public sector investment can foster economic growth, especially investment in infrastructure.

Source: Wall Street Journal