Canada’s business investment has been weak for years says study

Since 2005, the rate has been lower than at any time since 1970, impacting economic growth and living standards

Canada’s business investment has been weak for years says study
Steve Randall

Canada needs to step up its business investment to avoid falling further behind its peers according to a new study.

The Fraser Institute’s research, published today (Aug. 10), found that business investment slowed significantly even before the pandemic-driven recession of 2020.

“Business investment is critically important because of its effects on economic growth and higher living standards for workers, but lately Canada has experienced some of the lowest investment growth in fifty years,” said Steve Globerman, senior fellow at the Fraser Institute and co-author of An International Comparison of Capital Expenditures.

Between 2005 and 2019 the growth rate for business investment slumped from almost 45% for 2000-2005, to 25% in 2005-2010, less than 19% for 2010-2015, and to little more than 11% in 2015-2019.

The weak rates mean that Canada is underperforming its peers having outperformed them in the period from 2000-2010. In the most recent period (2015-2019) Canada’s growth in business investment of 11.6% was well below the OECD average of 19.6% and the United States’ 19.7%.

Industries that are lagging

Two key industry sectors are particularly evident in machinery and equipment, and intellectual property.

These two industries have a significant impact on Canada’s productivity and living standards.

“Given how important business investment is to increase productivity and raise living standards, the slow growth rate Canada is experiencing is alarming, particularly now as Canada emerges from the COVID recession,” Globerman said. “Improving the conditions that encourage more business investment should be a priority for policymakers across the country.”

The full study is available on the Fraser Institute’s website.