Growth rate of capital investment in Canada hits 40-year low

Capital Investment in Canada: Recent Behaviour and Implications

Summary

• The growth of overall capital investment in Canada slowed substantially from 2005-2017 compared to earlier periods—and was lower than in virtually any period since 1970.
• Further, the share of business investment in total capital investment declined dramatically from 2014-2016. Conversely, the share of household investment in total investment increased; by 2015-2016, household investment’s share was higher than in any period since 1981.
• The share of total investment accounted for by dwellings is higher since 2014 than in earlier periods. This phenomenon is related to the increased share of household investment since the main asset category for households is residential dwellings.
• Conversely, the shares of total investment going to machinery and equipment, and intellectual property, declined in the 2010-2016 period compared to earlier years. These two asset categories are important channels through which new technology is introduced and diffused through the economy.
• This bulletin’s findings support recently expressed concerns from other researchers that the environment for business investment in Canada is deteriorating. In particular, the environment for business investment in assets that are critical to productivity growth has apparently become less favourable in recent years than the environments for other categories of assets.
• Against the background of uncertainty surrounding NAFTA and reductions in the corporate tax rate and business regulations in the US, more favourable treatment of business income and capital gains in Canada should be a Canadian government priority.