Highlights
- If Canadian policymakers play their cards right, the country could be propelled into an investment “supercycle” lasting for a decade or longer.
- The recent escalation in the U.S.-Canada trade war makes the case for Canada to seize the opportunity in front of it more compelling.
- There are currently over $1 trillion in announced projects already approved or on the table through 2035 and beyond. Because these proposed projects have varying timelines, it can create rotating waves of investment.
- However, the bigger thrust to economic growth has yet to be discovered. That figure reflects only publicly announced projects compiled under a relatively swift timeline. There is scope for significant upside. Under our high investment scenario, $1.5-1.7 trillion could materialize over the longer term.
- But to get there, requires some risk-taking. Past investment supercycles in the U.S. and Canada are typically accompanied by bold policy action. Canada’s “to do” list is long when it comes to improving competitiveness of the tax and regulatory systems, fostering and scaling high-growth firms, and ensuring skilled labour meets demand.
- It takes some stoking of the fire, but if done successfully, it creates less need for public funding of projects by creating a strong private investment ecosystem.
- The big prize for Canadians from a prolonged period of higher investment would be a jump in living standards after a decade of stagnation. This equates to an extra $12,000 in real output per capita in a high investment scenario, double the growth in our baseline view.
Some might question whether Canada can enter an investment “super cycle” after a poor track record on capital spending that has lasted since 2015. We think it’s possible, but the government needs to lean in harder to make it happen. Our June forecast called for growth in real GDP to double by 2027, but that still leaves a lot of upside potential that can be tapped if several pro-investment forces continue to align. The federal government intends to catalyze investment in priority areas, including energy, resources, transportation infrastructure, AI and defence. All of these are capital intensive, with long duration and, in some cases, labour intensive in the early stages of development. If governments can pair this ambition with a stronger competitiveness agenda, the investment backdrop can accelerate on its own accord, attracting and deploying private funds with fewer commitments from government coffers. The key enablers are well known, but not yet fully unleashed: untangling burdensome regulation, lowering interprovincial barriers with greater speed and scope, building and retaining skilled-labour, and creating a competitive tax environment across industries and firm sizes. The U.S.-Canada trade dispute is a compelling reason for Canada to pull the levers that are fully within its control. This means prioritizing the creation of a competitive ecosystem across the nation, including trade diversification through infrastructure expansion.
If policymakers get it right and lean more heavily into creating a pro-competitive environment, the investment outlook could be in for a series of upgrades that defies recent history.
