Business investment in Canada second-lowest among 17 advanced economies; holding back economic growth, higher living standards

Business Investment in Canada Falls Far Behind Other Industrialized Countries

Summary

• This bulletin provides an overview of business investment in Canada: why investment is important, its recent performance, and how it compares with other industrialized countries.
• Business investment is central to long-term economic growth and rising living standards. Investment is also an important determinant of the structure of industry growth in future years, since it provides the capital for firms to grow. Investment embodies new technological developments and innovations, committing firms to expand in a specific direction while providing the tools for employees to work more productively.
• There is a tendency to assume that the weakness in business investment in Canada is simply part of slow growth throughout the OECD following the financial crisis that began in 2008. However, despite strength in the energy sector before 2015, business investment in Canada has lagged behind that in almost all other advanced market economies for which there is comparable data.
• Indeed, business investment in Canada has been relatively low compared to other countries at least since 2000. It improved somewhat between 2009 and 2014 when strength in our energy sector boosted our relative performance. However, the underlying weakness of investment in Canada became apparent again after oil prices slumped, ending the boom in energy investment.
• The persistent weakness of business investment in Canada has been aggravated by several recent government policies including increased tax rates on capital and mounting budget deficits and debt, both of which add to the uncertainty that entrepreneurs and investors feel about the future.