Businesses urged to splurge in manufacturing or risk downturn

In the wake of oil’s downturn, the health of Canada’s economy rests on the manufacturing sector – yet businesses are shy to invest badly needed funds

by Penelope Graham

The reluctance of businesses to invest in Canada’s growing manufacturing sector is threatening national economic recovery, according to the Conference Board of Canada.

Despite improved growth in the sector, and a rebound in exports since oil’s downturn, non-energy business investment “continues to disappoint”, says the board.

“…many of the manufacturing industries that have been leading the rebound in exports are either at, or fast approaching, full capacity,” states the briefing. “Unfortunately, recently released investment intentions for 2016 were far more negative than expected.”
In an Index of Business Confidence Survey conducted by the board, weak market demand, government policies, lack of qualified workforce and a weak loonie all contribute to business’s investment reluctance. While it’s expected that an improving US economy will help bolster Canadian economic growth, such factors will likely dampen investment enthusiasm for the long term.

In fact, investment is expected to be cut by an average of 11 per cent, despite many industries – including wood products, paper manufacturing and transportation – nearing capacity,

“In order for exports to continue to drive economic growth, a pickup in non-energy investment aimed at expanding productive capacity is needed,” states the board. “Without a pickup in investment, capacity constraints have the potential to upset recent economic momentum.”
“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,” stated Matthew Stewart, associate director, of Economic Forecasting and co-author of the briefing. “If non-energy investment does not rebound over the coming months, capacity constraints in some manufacturing industries could impact future growth.”
It’s anticipated that non-energy investment will perk up slightly in the latter half of 2016 as US demand provides incentive for companies to up their spending, but “continued lack of investment has the potential to severely limit Canada’s future growth.”