Source: The Canadian Press

Canadian business leaders appear to be finally gearing up to tackle the country’s dismal productivity record with a much-needed infusion of cash to modernize their operations.

The Bank of Canada says its latest quarterly business outlook survey shows firms are preparing to increase investment in productivity-enhancing machinery and equipment over the next year, after a lengthy slumber.

Forty-six per cent said they were hiking spending, while only 10% said they would spend less — a 36-point differential that is a record for the central bank’s survey on this question.

“Following a period of restraint in investment expenditures, many firms reported plans to resume more normal levels of spending,” the bank said in its analysis.

“The increase in this indicator is widespread across all regions and sectors.”

Earlier this week, the C.D. Howe Institute warned that Canada’s productivity gap with the U.S. and other large advanced economies was widening and that the situation could not continue without a hit to the country’s standard of living.

The report found that the key contributor to the gap was significantly lower investment by firms over the past two decades.

Central bank governor Mark Carney has also taken up the cause in the past year, at times calling out corporate leaders to take advantage of government breaks, lower taxes, the strong loonie, and record-low interest rates, to prepare for the competitive nature of the post-crisis economy.

Recent data has tended to indicate that business investment is rising, and the C.D. Howe report authors, Colin Busby and William Robson, said the conditions were in place for robust investment over the next few years.

Canada’s productivity gains have lagged at about half the rate of the U.S. in the past decade.

The quarterly survey, conducted in late August and early September, finds firms surprisingly upbeat about the future, given that the economy has noticeably slowed since the first quarter.

A majority of the 100 firms questioned said their sales had picked up in the past year, over the previous year, and a majority also expected sales to continue rising in the next 12 months.

More firms than three months ago also reported they are now facing labour shortages in specialized areas, suggesting a ramp up in production.

Firms and loan officers also report that lending conditions are easing, which should make those investments firms say they will make less costly.

One negative is that fewer firms expect to increase hiring in the next year from the previous 12 months, but hiring intentions remain mildly positive overall.

This coincides to the sharp slowdown in actual employment reported by Statistics Canada.

Job growth has slowed to under 7,000 a month in the last three months, with Friday’s data for September showing a 6,600.

Still, the central bank says the take-away message from the survey is encouraging.

“Responses to the autumn survey suggest that economic recovery is progressing,” the bank said.

“Firms remain positive about the outlook over the next 12 months, but they generally expect growth to be modest, owing in part to a weaker outlook for the U.S. economy.”