With a trade deal (whatever name you want to call it) now reached between Canada, Mexico and the United States, a giant cloud of uncertainty has finally lifted. For more than a year, nervous businesses had to balance all the unknowns on the one hand and the demands of a booming economy on the other...
The concern is well-known by now. Many stakeholders and experts warned that Canadian businesses were holding off buying new equipment and machinery until there was some confidence about Canada's trade relationship with the U.S.
After all, who wants to invest all that money with a cloud hanging over their head?
So now that a deal has been reached, complete with a rebranding from NAFTA to the USMCA, should we brace ourselves for a wave of new business investment?
Well, not so fast. The numbers actually paint a slightly different picture.
"The dent from uncertainty has likely been smaller than expected, so the rebound now may not be as big as some suppose," said Brett House, deputy chief economist at the Bank of Nova Scotia.
By then though, the economy was chugging along. The Trump administration's tax cuts seemed to spark even faster growth and stronger corporate earnings. As the U.S. economy boomed, Canada benefited, too. U.S. demand for Canadian goods and services surged. With that, came a critical moment for Canadian businesses.
Orders started to pour in. It became hard to keep up. In an ideal world, businesses would invest at this point in the cycle, adding factory space or buying new equipment to make their facilities more productive. But all that uncertainty weighed on businesses.
Reluctant to spend big money until they had some certainty, companies tried to substitute labour for capital investment. But that was only ever going to work so well...
At that point, he said, the choice was either "invest or leave orders on the table."
And sure enough, by the end of 2017, spending on "non-residential structures, machinery and equipment" began to shoot up — by 8.7 per cent in the fourth quarter compared to the same period a year earlier, and by 8.2 per cent in the first quarter of 2018.
So the notion that uncertainty over NAFTA prevented companies from spending just isn't borne out by the facts, House said...
This was excerpted from 4 October 2018 edition of the CBC News.