In this week’s EconMinute, we’re talking about business capital investment.
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Plans for capital investment over the course of this year indicate modest optimism among business leaders, but more is required for longer-term growth in Alberta.
In a more typical recession, capital investment—spending on things like machinery, equipment, and new offices and facilities—is a leading indicator of economic recovery; these are big investments businesses don’t make unless they are confident in their future.
Coming out of the pandemic, things are a bit different as the focus is more on the return of consumer spending. However, capital investment remains crucial when it comes to generating longer-term economic growth and should not be overlooked. This kind of spending enables businesses to increase, or improve, their production or service delivery, generating more jobs and higher wages for Albertans in the years to come.
- Planned capital spending in Alberta for 2021 is $52 billion, up about 6% compared with 2020.
- Even so, planned spending for this year remains well below Alberta’s typical spending historically: it is about half of the 2014 peak, and about 16% below its pre-COVID trend.
- Almost all the decrease over the last two years was driven by oil and gas. Meanwhile, other industries are spending a similar amount on capital in 2020 and 2021 as they did historically.
- Oil and gas investments account for about one third of total planned capital spending in Alberta, down from more than 60% ten years ago.
- However, with WTI prices above initial expectations, capital spending in oil and gas may be higher than anticipated at the top of the year.
- Looking ahead, Alberta will need to see capital investment pick up outside the energy sector to reach the same level of business investment and growth that we’ve seen in the past.