Oil and Gas Drag Down Canada Investment Plans for Second Year

Oil and gas companies hurt by low prices are leading a drop in Canadian investment plans for a second year, a government survey found.

Planned spending by companies and governments on non-residential construction and machinery and equipment will fall

4.4 percent in 2016 to C$241.6 billion, Statistics Canada said Tuesday from Ottawa.

The survey backs up recent statements from Bank of Canada policy makers, who say the country is undergoing a complex adjustment as an oil-price shock and slower global demand hamper growth.

Statistics Canada said capital spending in the mining, quarrying and oil and gas industry will drop 23 percent in 2016, after a 31 percent decline in 2015. The Bank of Canada predicted in April investment in the oil sector would fall about 60 percent this year from 2014 levels.

Investment weakness was broader than energy, with 11 of 19 other industries also scaling back. Manufacturing was the second largest contributor to the decline, with intentions falling to C$17 billion from C$19.1 billion in 2015.

Alberta mining, quarrying and oil and gas companies plan to cut investment by C$10.7 billion this year, and overall spending in the industry may fall 23 percent to C$47.7 billion. The western province’s heavy crude makes up a large part of national reserves that are the world’s third largest.

“The decline in energy prices has stripped more than $50 billion in export revenues from the economy, and it will take time to recover,” Matthew Stewart, Associate Director, National Forecast, wrote Monday in a report.

Manufacturers have been reluctant to invest in a time when shaky global demand makes it unclear that funding an expansion of capacity will pay off, Bank of Canada Governor Stephen Poloz told lawmakers last month.

Capital spending plans by private companies are down 9.3 percent this year to C$157.4 billion, and for the public sector they rose 6.5 percent to C$84.1 billion, the agency reported.

Forecasts from Bank of Montreal and the Conference Board of Canada had called for 2016 declines of 7.7 percent and 6.1 percent, respectively.

Spending fell 7.2 percent in 2015, the agency said.

Investment had been rising each year following a recession in 2009 until the oil price slide. The survey of intentions for capital and repair expenditures is based on a survey of 25,000 public and private organizations taken between October and January.

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