Canadian businesses to significantly ramp up capital investment
TORONTO, Oct. 21, 2013 /CNW/ - Corporate Canada has never been in a better position to capitalize on a U.S. economic recovery, finds CIBC World Markets Inc. latest Composite Indicator of Corporate Canada's Strength.
"While it is widely expected that stronger growth in the U.S. next year will have an upside benefit for Canada, what might surprise many is how quickly and significantly corporate Canada will ramp up spending to capitalize on the long awaited rebound in global demand," says Benjamin Tal, Deputy Chief Economist at CIBC.
Using the bank's Composite Indicator of Corporate Canada's Strength, he finds that, while softening somewhat recently, the index is still hovering around an all-time high and is almost a full point above its long-term average. "That's important since the higher the level of our index, the more responsive corporate Canada has been to a shift in U.S. demand."Mr. Tal notes that, on average, a one per cent change in U.S. growth has led to a full three-percentage-point change in capital expenditures by Canadian corporations. However, during periods of high-index readings like we have currently, the same increase in U.S. demand has translated into a four-percentage-point acceleration in capital spending by Canadian companies. "The response by Corporate Canada is directly linked not only to the speed of the recovery south of the border, but also to its financial position at the eve of that acceleration," he says. "Given the highly elevated level of our index, the ability of Canadian corporations to respond to improving U.S. demand has never been better. "What's more, this is not a tale of one or two major industries that biased the aggregate results. The index performance is widely based. In fact, improvement in key measures such as cash position and profit margin in recent years actually appears more impressive when the mighty energy sector is excluded."
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