Investment Picks Up in Canadian First Quarter

June 29, 2015Canadaby EW News Desk Team

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Small business investment increased in the first quarter, according to new data from PayNet, a sign that the Canadian economy is improving. The exceptions are Saskatchewan and Alberta, two provinces still reeling from the shock of low oil prices. Both provinces saw a 1.0 percent decline in investment, and loan delinquencies surged by 2.0 percent.

The Canadian economy is picking up nationally, but experts remain cautiously optimistic. First, lending across Canada shot up 1.0 percent, as confidence in the economy increases. Further, diversification is on the horizon, and it may take 1-2 years for the economy to shift from an energy-focused system to one based on consumerism and manufacturing, according to PayNet President Bill Phelan. Phelan further notes that such a move would make the economy stronger and less susceptible to falling oil prices, and the data shows that regions not as dependent on oil production have the highest growth rates.

Oil prices have increased since 2014, but prices are still around 40 percent less than last year. This is not to say that lower oil prices have been devastating to Canada's economy, and the shock has benefited Canada in certain ways. For instance, manufacturing and consumers have extra money to contribute to the economy because of lower transportation costs. However, experts caution against substantial personal income growth for the year, and overall household spending expects to remain stagnant, with household debt still plaguing many consumers, notes Business Vancouver. Retail investment went up 68 percent in first quarter, and manufacturing investment increased by 8.0 percent. Ontario, which is Canada's primary manufacturing center, saw a 1.0 percent increase in manufacturing investment. Quebec investment increased by 2.0 percent, with Manitoba and British Columbia growing 4.0 percent.

Decreased oil prices will still have a negative effect on investment and corporate earnings in the short-term. Investment may have picked up, but many businesses are less willing to take risk, even as the economy improves. Job growth and wage increases have been slow, but the economy is benefiting from low interest rates, and rates expect to increase as the economy gains traction.

The good news is that the worst part of the economic downturn is over, according to analysts. GDP growth expects to grow 1.0 percent in the second quarter, while growing 2.5 percent in the second part of the year, and the economy may strengthen in the next few quarters as oil prices return to productive levels. Canada is also depending on U.S. growth for future prosperity.