Canada suffered another bad year of investment, extending the weakest run of capital growth outside the housing sector in nearly six decades.
The value of non-residential capital rose just 1% in 2018, reflecting the third straight year of historically sluggish investment. Since 2015, growth has averaged 0.8%, according to data released this week by Statistics Canada. That’s the weakest three years of growth since 1961 for non-residential capital, which includes buildings, engineering structures, machinery and equipment, and intellectual property products.
Meantime, housing-related capital — which includes construction, renovations, and ownership costs — rose at a 2.8% clip over the same period. The gap between the growth rates of the two types of capital is now one of the widest ever.
“It’s one of the most important diverging trends in recent Canadian history: Fundamentally strong demand for housing and record-high residential construction put against a contraction in oil and gas investment due to lower oil prices and transportation bottlenecks,” Dominique Lapointe, an economist at Laurentian Bank Securities in Montreal, said by email.
The Bank of Canada has long championed a rotation toward non-energy exports and business investment as preferred drivers of growth, but a weakening global economy and lower mortgage rates have propelled real estate to the forefront once again in the second half of 2019. Housing-related stock is now valued at a nominal C$2.5 trillion ($1.9 trillion), or 49.3% of the capital in the country, compared with 50.7% in the non-residential stock.
“In the current macroeconomic environment, it’s hard to see business investment becoming a leading growth driver at this rate,” Lapointe said.