 A Structural Interpretation of the Recent Weakness in Business InvestmentRussell Barnett and Rhys Mendes () Staff Analytical Notes from Bank of Canada Abstract: Since 2012, business investment growth has slowed considerably in advanced economies, averaging a little less than 2 per cent versus the 4 per cent growth rates experienced in the period leading up to crisis. Several recent studies have attributed a large part of the weakness in business investment to cyclical factors, including soft aggregate demand, and, to a lesser degree, heightened uncertainty and tighter financial conditions. In contrast, our analysis suggests that structural factors could provide an alternative explanation for the observed weakness in Canadian business investment. As a result, there is a risk that this weakness could prove to be much more persistent than cyclical interpretations suggest. Overall, population aging combined with two factors that could prove to be structural—weak productivity growth and the 2014–15 collapse in oil prices—could plausibly reduce the investment-to-output ratio by as much as 2 percentage points by 2020 relative to the average of 12 per cent observed since 2000, or an additional 0.9 percentage points relative to its 2016 value. This would have important implications for the economic outlook. Keywords: Business fluctuations and cycles; Domestic demand and components; Recent economic and financial developments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsan:17-7 Access Statistics for this paper More papers in Staff Analytical Notes from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC. |
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