March 19, 2024

Weekly EconMinute—Alberta businesses’ capital investment

In this week’s EconMinute, we’re talking about Alberta businesses’ capital investment.

Statistics Canada recently reported businesses’ capital investment expectations for 2024. Spending on capital projects (e.g., machinery, equipment) plays a critical role in boosting labour productivity and, consequently, elevating economic growth and our overall standard of living.

Historically, a significant portion of Alberta’s capital spending has come from the oil and gas industry. As such, the sector has had a substantial impact in driving Alberta’s labour productivity and overall prosperity. Given the pivotal role of capital spending, we were eager to see what sense current expectations for 2024 give of the state and health of the oil and gas industry and Alberta’s economy more broadly.

Here’s what we found:

  • This year businesses expect to spend approximately $69 billion on capital investment, with the oil and gas industry accounting for a little less than half of that.
  • Though a big number, this is significantly below historical levels. For instance, in the mid 2010s capital spending surged, reaching a peak of $98 billion in 2014. Notably, the oil and gas industry was responsible for over half of this at $61 billion.
  • Since then, there has been a notable decrease in capital spending in the province in both oil and gas and all other industries with the oil and gas sector cutting its spending in half.
  • Nonetheless, capital investment expectations for this year remain on par with recent levels (oil and gas +4.3% versus 2023 and all others -4.6%) and a far cry from their lowest level in over a decade when investment reached just $49 billion in 2020.

As for what’s driving this new normal, lower capital spending in the oil and gas sector, despite strong WTI prices, is likely due to ongoing investment uncertainty in the natural resource sector. Given market volatility as well as regulatory and other policy concerns, companies are prioritizing debt reduction and returns for shareholders over risky investments. This cautious approach may ultimately impact Alberta’s prosperity. 

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