Investment looks like a strong point in Canada’s outlook
“Public-sector
spending is actually headed for a solid gain
this year.”
With a slowing economy that could use more good news, Canada got some yesterday.
Plans for investment in new buildings and equipment, which gave our growth a nice boost last year, is poised to perform the same welcome role in 2012.
An especially unexpected high note is that publicsector spending, which was expected to be a drag on the economy with the end of big stimulus programs, is actually headed for a solid gain of 6.3 per cent this year.
Far from holding back growth, this is actually a tad better than the projected private sector gain of 6.2 per cent.
A key reason for this seems to be heavy spending on utilities, up more than 14 per cent, and transportation projects, where spending will rise nearly 23 per cent.
Provinces across the country have major electric-utility projects on the books, something that can often be funded from the revenues of crown corporations instead of requiring taxpayer support.
This year, there will be especially heavy spending on power plants and related infrastructure in Alberta and British Columbia.
As well, there’s a big rise in transport and transit spending, focused largely in Ontario and Alberta.
It gets better. There’s reason to suspect that this year’s gain in private investment will in fact be better than the projected 6.2 per cent, points out Paul Ferley, assistant chief economist at the Royal Bank of Canada.
During periods of economic expansion, actual business spending on capital projects tends to outpace management projections, Ferley notes.
Certainly, this is something that happened last year, and in a big way.
At the beginning of 2011, private investment intentions for that year showed a gain of 3.8 per cent, but now we have preliminary numbers for actual spending, and it jumped by more than twice that pace, or 8.8 per cent.
A couple of big sectors where this phenomenon was most striking were manufacturing, where managers expected to boost investment by 15 per cent, but actually increased it by more than 21 per cent, and petroleum and mining, where a planned increase of just over 11 per cent turned into a real jump of nearly 19 per cent.
This year, manufacturers are planning to increase investment by 6.6 per cent, a gain that’s “not spectacular, but good, solid progress” in the estimation of Douglas Porter, deputy chief economist at BMO Capital Markets.
Petroleum and mining operators, by contrast, have jacked up intended spending growth for 2012 to 17.7 per cent, which would produce more than half of all Canada’s investment growth.
And, as with business investment in general, said Ferley, these figures are not the last word: “I’d say the risk is to the upside.”
Indeed, even the two big sectors that showed big drops in investment plans, finance and real estate, aren’t showing any real distress, suggested Debra Roberts at Statistics Canada.
The finance industry reported a 14-per-cent drop, but this reflects unusually heavy spending on major projects in 2011 rather than any collapse in 2012.
Similarly, real-estate investment, down 11 per cent, is simply settling back closer to normal after exceptionally high spending in 2011 because of “a huge project” in Alberta that has now been completed, said Roberts.
Housing, where a slow down in construction has been expected by many analysts, continues to show surprising strength. Investment intentions (based on a forecast from Canada Mortgage and Housing Corp.) are for growth of 3.4 per cent, a bit faster than last year’s 2.9 per cent.
Regionally, investment gains were dominated by resource-rich Newfoundland, Alberta and British Columbia, all showing gains of more than 10 per cent.
Among the remaining provinces, Quebec’s investment performance held up unusually well, with a 5.7-percent gain. Ontario did surprisingly poorly, even with the revival of its big auto industry, managing to edge up by just 1.6 per cent.