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The Success of Canada’s Recovery: Are Investors Ready to Spend?

Financial Post | Kevin Carmichael | Jan 5, 2021

Canadas economic recovery - The Success of Canada's Recovery:  Are Investors Ready to Spend?The recovery's pace will be determined by entrepreneurs, executives and investors — groups that for years have been reluctant to leave the sidelines

Eyes roll on Bay Street when Prime Minister Justin Trudeau and his cabinet ministers describe old-fashioned government spending as “investment,” but Ottawa has a good riposte: someone has to do it.

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“Businesses are reluctant to make big bets,” industry minister Navdeep Bains said last month in a year-end interview.

“Businesses are reluctant to make big bets.  We as a government have done so in the past and will continue to do so, but if we are to genuinely create jobs and unlock more growth opportunities and improve our productivity versus the U.S. and other jurisdictions, businesses need to step up.”

Investment is the sleeper issue that will determine whether the economy emerges from the COVID-19 crisis with purpose in 2021, or merely muddles along as it did in the aftermath of the Great Recession.

The Bank of Canada has promised to keep the benchmark interest rate near zero for at least another year, and Trudeau has sanctioned rescue funding worth hundreds of billions of dollars, which will keep the economy afloat. But the pace of the recovery will be determined by entrepreneurs, executives and investors — groups that have been reluctant to leave the sidelines for much of the past decade.

The unwillingness of Canada's biggest companies and richest investors to engage has left the country ill-prepared for the hyper-competitive, digitally oriented economy that awaits on the other side of COVID-19.

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Business investment in machinery and equipment was 3.1 per cent of GDP in the first quarter of 2020, according to Statistics Canada data, compared to a quarterly average of 3.7 per cent since 2000. The figure crested at around four per cent a decade ago, and hasn’t touched that level since the end of 2014, when oil prices collapsed.Money wasn’t the issue: corporate profits were strong. But whatever the reason, the unwillingness of Canada’s biggest companies and richest investors to engage has left the country ill-prepared for the hyper-competitive, digitally oriented economy that awaits on the other side of COVID-19.

“This culture of being risk averse is a challenge for Canada,” Bains said.

Last year, the Bank of Canada dropped the rate at which it estimates the economy can grow without stirring inflation to a meagre 1.4 per cent, from 1.8 per cent previously. The reason: the pandemic had cut off the flow of immigrants, which up until 2020 had been the primary driver of economic growth, and the country’s companies were too inefficient to make up for the loss.

The Financial Times newspaper’s list of the Top 100 companies of 2020 included just one Canadian firm: Ottawa-based Shopify Inc., which was ranked No. 22. The table was dominated by Chinese (36) and American (30) outfits, but South Korea, Japan, Denmark, Germany, Australia, France, Spain and Sweden all appeared at least twice.

 


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