December 11, 2023

Weekly EconMinute—Alberta businesses’ investment expectations

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

Business investment expectations offer crucial insight into future economic growth and the prosperity of Albertans. Our latest Business Expectations Survey (BES), conducted in November, revealed a notable shift in investment intentions (defined as planned spending on machinery and equipment in the next 12 months) compared to previous surveys. It showed that, after months of bucking the national trend, Alberta business leaders are exercising greater caution in their investment plans.

In this EconMinute, we dig into the details of what happened, what this means, and what we expect in the coming months.

alberta business investment expectations - nov 2023

Here’s what we found:

  • Fewer businesses expect to increase investment spending over the next year: just 28% as of November, down from 52% in June.
  • Meanwhile, more plan to reduce their spending: 30% as of November, up from 19% in June.
  • As a result, the “balance of expectations” (the percentage of businesses planning to increase investment less those cutting back) dropped from firmly positive at 33% in June to neutral (-2%) as of November.
  • This is a divergence from the three-year average when, in any given quarter, about half reported plans to increase spending and just 16% planned to cut back.
  • The last time we saw weak investment intentions was in the midst of COVID when more than half (53%) of businesses indicated plans to cut spending.

Given the continued strength of Alberta’s economy, this recent cutback (or, more accurately, neutralizing) is likely driven more by the cost of financing than perceived weakness of the economy. In fact, our survey confirms that financing costs are a key hurdle with 46% of businesses noting that terms and conditions for obtaining financing have tightened in recent months. Nonetheless, investment in the near term facilitates growth in the long term, and this leveling is not good for Albertans.

One glimmer of hope is the Bank of Canada’s recent decision to hold (rather than increase) interest rates, and the possibility of rate cuts and cheaper financing in the near future.  Assuming the Bank holds rates once more in January before gradually cutting later in the year, we expect investment intentions in our next BES survey to show continued softness but no further deterioration.

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