A new report by RBC Economics says Canadian institutions anticipate a 4.3 per cent ($13 billion) boost to capital expenditures in 2023 with half of the lift attributed to the energy and mining sector .
The report says Saskatchewan, Quebec, and Newfoundland are expected to post strongest increase in investment in the year ahead.
The report said the planned expenditures are largely driven by private commodity-producing businesses.
“That is broadly consistent with BoC’s (Bank of Canada) earlier Q4 Business Outlook Survey that flagged softening in the investment growth outlook, but with relative strength in commodity-producing sectors. Mining, quarrying, and oil and gas extraction account for nearly half ($6.4 billion) of the $13 billion boost to intended capital expenditure in 2023. Mining companies are planning on spending 20% more this year on construction, machinery, and equipment. A major investment in a new potash mine in Saskatchewan accounts for one-third of the lift within the subsector. Manufacturing (largely chemical, metal, and food products) and utilities make up the remainder of the anticipated lift to capital expenditure,” said RBC.
“Even as we approach a recession, firms are largely expected to follow through on major capital commitments. We continue to anticipate the economy will enter a mild recession this year as higher interest rates and inflation cut into household purchasing power. And that could derail some of the investment spending businesses are planning for 2023. Still, much of the planned investment is driven by commodity prices more than domestic household demand conditions – and commodity prices are still high.
“But even as we enter a recession, there are many reasons firms will continue to invest. Additionally, as firms continue to grapple with persistent labour shortages, firms will rely on productivity enhancing capital investments to mitigate these shortages and offset higher wage growth. We expect to see some softness in business investment this year as the economic backdrop weakens, but expect business investment broadly to outperform what would normally be expected in an economic downturn.”
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