Canadian companies at capacity, yet still cautious on investment

Wed Jun 1, 2016 5:24pm EDT
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By Leah Schnurr

OTTAWA, June 1 (Reuters) - Even with some parts of the Canadian economy operating near capacity, economists say business investment is unlikely to pick up soon because many companies are wary about the outlook for growth.

Canadian business investment fell again in the first quarter, gross domestic product data released on Tuesday showed, the fifth straight quarterly decline, which weighed on economic growth.

The business investment decline, heavily influenced by the oil price slump, contributed to Canada's slip into a mild recession last year. Stronger business investment, along with a pick up in exports, is key to the central bank's outlook.

Weak global and Canadian growth expectations mean businesses do not need to invest as much in expanding their operations as they might have otherwise, said Eric Lascelles, chief economist at RBC Global Asset Management.

Additionally, there has been a shift toward risk aversion and away from investing for growth, he said.

"Sometimes that means leaving something on the table in terms of growth opportunities and I think that is still very much central to business decision making around the world right now," Lascelles said.

The Bank of Canada said in April it expects business fixed investment will take 0.8 percentage points off economic growth this year before contributing modestly in 2017. It more recently noted investment and intentions remain disappointing.

Lascelles expects the bank may have to lower that forecast, possibly in its next monetary policy report in July.   Continued...