Public Investment to the Rescue

The main message in Statistics Canada’s release of 2009 investment intentions is that modestly higher public investment will partly offset sharply lower private investment.

The glass-half-full perspective is that things would look far worse without the increase in public investment. The glass-half-empty perspective is that this increase will not be nearly enough to fully offset the loss of private investment.

Statistics Canada’s release emphasizes non-residential construction and machinery and equipment, presumably because these types of investment contribute most strongly to productivity. However, residential construction also contributes to aggregate demand.

Tables updated along with today’s release reveal that residential construction intentions are also down, but not as steeply. Figures including residential construction suggest a 5.4% drop in total investment, which is slightly less bad than the 6.6% drop highlighted in today’s release.

Capital Investment in Canada ($ billions)

 

How much has public investment cushioned the blow from the private sector? Without the 2008-2009 boost in public investment, total investment would have been $320.6 billion in 2009, a decline of 7.3% (rather than 5.4%) from the 2008 level.

How much public investment would have been needed to completely close the gap? If public investment had increased by $25.4 billion, total investment would be the same in 2009 as in 2008.

This would have required a 35% rise in public investment as opposed to the expected 9.5% rise. To put both percentages in context, public investment actually rose 21% from 2007 to 2008, accounting for most of the investment increase between those years. If governments could pull off a 21% increase then, they should be able to do better than 9.5% amid the current economic crisis.