Aggregate private investment

Aggregate private investment has increased significantly over the past two decades, largely due to strong economic growth driven by global demand for Canadian natural resources. Timber, crude oil, coal and metals extraction are all capital-intensive processes. The strong domestic housing market also spurred steady investments in housing construction. Capital investments in petroleum extraction have grown strongly since the late 1990s and early 2000s, driven by technological developments that made oil sand reserves more profitable.

Demand for Canadian products contracted sharply during 2009 as the global economy slowed. Global petroleum prices similarly collapsed because manufacturers and consumers cut back energy consumption. As a result, private investment dropped 18.8% during that year. Industrial production quickly recovered in 2010, leading to strong investment growth between 2010 and 2013. However, aggregate private investment only increased by 1.6% in 2014, largely due to a slowdown in global economic activity. These negative trends were compounded in 2015 and 2016, as plummeting crude oil prices led to private investment activity plummeting.

Investment finally rebounded in 2017, as commodity prices began to increase and the nonenergy sectors of the economy preemptively increased production capacity to prepare for perceived growth in future demand. This led to growth in aggregate private investment of 7.0% in 2017. Strong economic growth was also a factor in spurring this growth. Investment declined slightly in 2018 due to rising interest rates which ratcheted up market volatility, thus weighing on business sentiment. The end of 2018 was especially disastrous for private investment, as markets plunged globally due to fears of a looming global slowdown. Headwinds intensified during the first three quarters of 2019, though conditions unexpectedly improved to close out the year.

The economic landscape deteriorated considerably at the start of 2020. The COVID-19 (coronavirus) outbreak in China weighed on the country's industrial activity in Q1, disrupting global supply chains and demand as it has spread globally. To make matters worse, Saudi Arabia announced it would slash prices and increase production of oil in response to Russia refusing to lower output in response to the decline in energy demand. While OPEC+ agreed to production cuts starting in May, oil prices fell precipitously on fears of storage running out, with crude oil futures contracts briefly declining into negative territory.

With job losses breaking records and curtailment of large swaths of the economy having lasted for months, aggregate private investment declined 11.1% in 2020. With a vaccine for the coronavirus having arrived at the end of 2020, the long-term effects of the outbreak are expected to be muted, particularly with a strong vaccination uptake in 2021. However, new variants have placed additional ongoing downward pressure on recovery, with uncertainty further exacerbated by rising inflation. Despite ongoing concerns of new variants and inflation, the reopening of the economy and the dissemination of vaccination boosters contributed to an increase of 15.3% in 2021. However, growth is expected to slow in 2022 amid rapid inflation and interest rate hikes. Further pressuring investment, the onset of the war in Ukraine is tempering global trade activity as a result of sanctions against Russia, driving overall economic uncertainty and growth in energy prices. Inflation poses the greatest threat to private investment, fueling uncertainty and the possibility of a recession. As a result, aggregate private investment is expected to subdued, reducing 7.7% in 2023 alone. Although a recession was avoided in 2023, stubborn inflation is forcing the Bank of Canada to keep interest rates elevated in 2024, directly resulting in aggregate private investment falling 4.5% in the same year. In 2025, private investment is expected to reverse to growth, rising 1.2% during the year.