Manufacturing AUTOMATION

News Industry News
Investment expected to boost economy in 2012


Canada’s economy could be getting a boost this year from an unlikely source — government investment — in a strong signal that the recovery will continue to gather steam, if slowly.

Statistics Canada reported that it sees private and public sector investments rising by 6.2 percent to $394.1 billion in 2012, almost as strong as the anticipated 6.9 percent final tally for 2011.

The big surprise is that despite all the talk about austerity, the agency calculates governments at all levels will likely jack up capital outlays by 6.3 percent from this year’s anemic 1.1 percent.

“To me that’s the real notable feature of this report,” said Douglas Porter, deputy chief economist for BMO Capital Markets. “We’ve only had Alberta’s and B.C.’s budgets so far, so things can change. But it’s a positive sign. We’d been assuming an outright public sector decline in capital spending this year.”

Advertisment

A 14.6 percent hike in capital projects for utilities was the key reason for the upswing in the government sector, with expansion in electricity generation, transmission and distribution in both British Columbia and Alberta leading the way.

But there was also intentions for a 3.8 percent hike in public administration spending, about half of that coming from municipalities.

Ottawa has announced it plans to cut program spending by at least $4 billion by 2014, but that may be separate from capital expenditures, which include everything from buildings to computers.

Growth in private sector investment intentions came in closer to consensus at 6.2 percent, a slight drop-off from last year’s robust 8.8 percent gain.

On the corporate side, more than half of the gain is coming from the oil and gas extraction sector, with transportation and warehousing, and manufacturing also showing strength.

Porter noted that investments in such things as machinery and equipment and buildings are important contributors to economic growth, so the Statistics Canada report is a signal that the recovery, while soft, remains in place.

While policy makers are still keeping their fingers crossed, the past few weeks have found several economic weather vanes pointing north.

The U.S. has upgraded its fourth-quarter economic performance two notches to three percent, although Federal Reserve chairman Ben Bernanke struck a cautious tone in remarks to Congress.

The other dark cloud hanging over Canada’s economy, the threat of a full-blown European debt crisis, also appears to have receded in the short term at least, after additional funds were cleared to keep Greece and vulnerable European banks afloat.

Finance Minister Jim Flaherty said that he has a “higher degree of comfort” with the situation in Europe.

“In terms of the Canadian economy, what we’re seeing is modest growth that is persistent,” he told reporters.

Compare that with the grave forebodings of the summer, said Porter, and the contrast is like night and day.

“With gasoline marching higher and still all kinds of risks out there, it’s way too early to sound the all clear signal,” he pointed out. “But when you look back on the fourth quarter, almost no one was calling for three percent growth in the U.S. in September. We were in the very depth of the European crisis, we had just come off the debt-limit debate in the U.S., the markets were close to their low, and people were talking about a 40 percent chance of recession in the U.S.”

Few now have a recession in 2012 in their crystal ball, Porter added.

Despite the overall positive tone of the Statistics Canada report, there were some weak links. Financial services are expecting a 14 percent cut in outlays, while real estate and rental and leasing are expected to contract by 11 percent, and education by seven percent.