Corporate Canada ready to spend in 2014: CIBC

Spending by Corporate Canada is expected to ramp up in 2014 as global economies, particularly the US, continue to show signs of improvement, says a report by CIBC Economics.

The study by economist Benjamin Tal says Canadian companies are holding onto a near-record amount of cash, an estimated $5.7 trillion, yet have been reluctant to invest in capital projects due to economic uncertainty.

But as some of the world’s largest economies show clear signs of strength, these firms will be more willing to spend that money in 2014 [CIBC]...

... the bank’s Composite Indicator of Corporate Canada’s Strength is at an all-time high, and nearly a full point above its long-term average. The index uses nine factors to measure Canadian businesses including return-on-equity, business confidence, and cash-to-credit ratios.

The bank estimates the US economy will expand by 3.2% next year, more than double the projected pace in 2013. While China is forecast to grow by 4%, compared with 3% this year.

...historically, growth in the U.S. leads to more capital spending in Canada. On average, 1% of growth south of the border translates into a 3% change in capital expenditures by Corporate Canada, according to the study.

This change could also be seen across a majority of sectors...

The study also pointed to a current record-low number of bankruptcies in Canada as another indicator that businesses will be more willing to spend reserve cash. It noted that 3,150 companies declared bankruptcy in the 12-month period ending June 2013, a drop of 8% from a year earlier.

Despite this, the study says other factors, such as downward trend in profit margins for Canadian businesses, may discourage some.

This has been excerpted from 21 October 2013 article by the Canadian Press, and is available in its entirety at: http://www.canadianmanufacturing.com/fabrication/news/holding-5-7t-cash-corporate-canada-ready-to-spend-in-2014-cibc-120742.