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Lack of Investment Subdues Canada’s Economy

Lack of Investment Subdues Canada’s EconomyLack of Investment Subdues Canada’s Economy

The Fort McMurray wildfires and a continued slide in oil and gas investment have dampened the outlook for the Canadian economy, according to a report released Thursday by the Conference Board of Canada.

But some observers say the lack of non-energy related business activity is even more concerning, and likely to curtail the gross domestic product growth nationally, ABC reported.

According to the Conference Board, the Canadian economy is now projected to grow by a lackluster 1.4% in 2016, down from the 1.6% growth predicted by the think tank in a forecast earlier this year. (An annual growth rate of 2% or greater is considered normal in a healthy economy).

The downgraded expectations are due in part to the wildfires that damaged much of Fort McMurray and the surrounding areas in May and June, and are expected to subtract 0.1% from overall economic growth this year. The fires forced the shut-down of production at many oil sands operations, resulting in a short-term loss of output equivalent to $3.5 billion in lost revenues for energy companies.

With the price of oil expected to remain near its current level of $50 per barrel, the Conference Board is also predicting energy sector investment to fall by $14 billion this year. This comes on top of the almost $19 billion drop in business investment in the oil and gas sector that occurred in 2015.

  Number One Issue

“On the energy side, I think we’re going to continue to see declines throughout the next couple of years. I think we’re not going to hit bottom until 2018,” said Matthew Stewart, associate director for the Conference Board of Canada. “But I would say the number one issue affecting the Canadian economy is the lack of non-energy business investment.”

Stewart said firms surveyed by the Conference Board identified a number of reasons for their hesitancy to invest, including sluggish US investment activity, difficulties attracting and retaining skilled workers, and global uncertainty compounded by shocks to confidence like Brexit and the terrorist attack in Nice.

The lack of traction on the business investment front is worrisome, said Justin Smith, policy director for the Calgary Chamber of Commerce. Smith said he believes the “bottom of the trough” has been reached when it comes to the oil price collapse, but added the economy will struggle to recover if businesses don’t loosen their purse strings and start to invest again.

“It seems to me it’s not so much the Fort McMurray wildfires, it’s not so much the price of oil anymore, it’s really just a lack of confidence among the business community to start placing bets and making investments,” Smith said.

 

Financialtribune.com