Capital spending on new construction, machinery and equipment is expected to pull back sharply in Alberta, according to the latest survey information from Statistics Canada released this morning. This comes on the heels of a similar sized reduction in 2015, which followed the record-setting year in 2014.
Total industry intentions for spending on capital investment this year is forecast to be just over $66 billion. The preliminary estimate from last year was $75 billion. This equates to a reduction in total spending of 23 per cent last year, and an expected reduction of another 12 per cent this year.
As the graph below illustrates, the drop in capital spending is due entirely to the pullback in the oil and gas sector—unsurprising given the drop in oil prices. Total spending dropped from $58 billion two years ago to intentions of just over $26 billion this year. This is illustrated by the orange bars below. The sharp reduction in energy sector spending is responsible for Alberta’s economy anticipating a second consecutive year of recession in 2016.
However, capital spending in all other industries of the province is expected to hold up quite nicely. Since 2013, investment spending in industries outside the oil and gas sector has been virtually unchanged at the record level of $40 billion per year.*
*Courtesy of Todd Hirsch • Chief Economist, ATB Financial