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Canadian Businesses Throttling Back on Equipment Investment

September 10, 2014, 06:05 AM
Filed Under: Economic Commentary

According to the Canadian Business Lending Index (CBLI) released by PayNet Inc. Canada, Canadian businesses are showing a pause in the low risk expansion phase of their business activities as they slow down investment and control financial risks.

  • The Canadian Business Lending Index (CBLI) declined 2% to 213 compared to Q1 2014 but increased 7% compared to Q2 2013
  • Since 3rd quarter 2011, Canadian businesses invested at a rapid rate, increasing overall investment by 55% through 4th quarter 2013
  • This latest release shows that Canadian businesses have satisfied their investment into PP&E so they have throttled back the pace

According to William Phelan, president of PayNet, “This latest release shows that Canadian businesses are "full"  on their investment into PP&E so they have throttled back the pace.. This latest release is no surprise as the double digit pace of investment became unsustainable.”

Investment remains heavy out west - SK/MB and BC/AB are taking a larger share of the CA economy. Capital investment moderated in Q2 2014 but was still above Q2 2013.

Higher loan delinquencies coincide with increased investment:

  • The CFLA Business Credit Delinquency (BCD) moderate loan delinquencies averaged 1.90% in Q2 2014, a decrease of 13 basis points compared to Q1 2014.
  • While moderate delinquencies declined since 1st quarter, they remain higher than comparable loan delinquencies in the U.S., which were 1.51%.
  • The CFLA BCD severe loan delinquencies increased just 1 basis point to 0.38% (vs. 0.30% in the U.S.) since last quarter.

The Canadian Business Lending Index (CBLI) measures the volume of new commercial loans and leases to small businesses indexed so that January 2005 equals 100. Because small businesses generally respond to changes in economic conditions more rapidly than larger businesses do.  The CFLA Business Credit Delinquency (BCD) Trends reflect the percentage of Canadian businesses that are more than 30 days past due or 90 days past due with Canadian finance companies. The BCD Trends measure small business financial stress and provide an early warning of future insolvency.

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