Ramping up government spending on infrastructure, rather than trimming interest rates, may be Canada’s best path should economic growth falter in the next year, notes a new report from CIBC world Markets Inc.

“Canada’s Plan B can’t depend on monetary policy, given how low rates already are,” says Avery Shenfeld, chief economist, in the report. “If the global picture materially sours, borrowing more, particularly at the federal level, and spending more on infrastructure projects” could serve to “reduce future deficits and improve growth in the process.”

The math supporting this approach is illustrated in 30-year government bond rates, which are now below Canada’s long-term economic growth rate. That means the cost of financing longer-term debt will steadily shrink over time as a share of GDP. “Infrastructure spending that adds to the economy’s productive capacity will raise tax revenues that will offset the added financing costs,” says Shenfeld.

In other cases, the arithmetic is even simpler, he says. “Some projects — toll roads, power projects — generate a direct revenue stream for governments that can more than cover the risk-adjusted financing costs,” Shenfeld says.

There are other reasons why targeted infrastructure borrowing and spending would be more advantageous than rate trimming in the event of economic shock, the report notes. “Trying to squeeze more growth out of housing and debt-financed consumer spending” by cutting rates increases longer term risks from excesses on both those fronts, says Shenfeld.

There’s also “notable elbow room” for Canadian governments, particularly at the federal level, to borrow and spend more if needed to spur growth, the report notes. “Governments across Canada are improving their fiscal position by rolling mature debt into new lower coupon bonds,” say Shenfeld and government strategist Warren Lovely. The drop in interest rates since 2007 has resulted in $25 billion in savings on debt servicing costs in the current year.

Shenfeld cautions that the benefits of increased borrowing to fund more infrastructure projects would only be realized if Canada faces a longer period of economic slack. Otherwise the additional building activity might only accelerate the timetable for Bank of Canada rate hikes and crowd out private construction projects.