Canada's Growth Probably Accelerated On Corporate Investment

Posted on Thursday, September 01 at 10:10 by jensonj
``If we started to see above-potential growth, that would certainly be something the Bank would be concerned about,'' said David Wolf, chief Canada economist at Merrill Lynch & Co. in Toronto. ``It makes sense while the opportunity is available to start to bring those rates up a little bit.'' Consumer prices in July rose 2 percent from a year earlier, matching the bank's inflation target. Inflation will accelerate to 2.5 percent in the first half of next year as oil prices rise, the bank estimated last month. All 18 economists polled by Bloomberg News over the past month expect the central bank to raise rates a quarter-point on Sept. 7. The Bank of Canada has kept its benchmark overnight lending rate at 2.5 percent since October. Energy Companies The Bank of Canada projects capital spending will account for about a third of the nation's 2.7 percent pace of expansion this year, up from a quarter last year. Funds available to businesses for investment surpassed C$100 billion in the first quarter, about 9 percent of gross domestic product, after operating profits jumped 19 percent last year, according to Statistics Canada. The boom is being led by energy companies, which are expanding to take advantage of record oil prices. Crude oil rose to $70.80 a barrel in New York today after Hurricane Katrina forced companies to evacuate platforms in the Gulf of Mexico, where 30 percent of U.S. oil is produced. Canadian energy companies, which posted a 44 percent increase in operating profit last year, will probably raise spending on oil-field development by 13 percent to C$35 billion this year, the Canadian Association of Petroleum Producers predicts. Canada has the world's second-highest oil reserves after Saudi Arabia. Shell Canada, Western Oil Sands Inc. and San Ramon, California-based Chevron Corp. jointly plan to spend C$7.3 billion to extract a tar-like crude called bitumen in the oil sands of northern Alberta. Fertilizer, Nickel Such projects are fueling sales of goods from off-highway trucks to steel pipes. Ipsco Inc., a steelmaker based in Regina, Saskatchewan, is tripling spending to C$100 million this year, in part to increase its pipe mill capacity. Caterpillar Inc., based in Peoria, Illinois, is racing to supply Canadian oil and mining companies with components, said Wayne Bingham, chief executive of Vancouver-based Finning International, the world's largest dealer of Caterpillar equipment. With oil at a record, energy companies are ``running their equipment hard,'' Bingham said. Corporate investment isn't limited to energy projects. Potash, the world's largest fertilizer producer by market value, is adding new workers at existing facilities and restarting a mill in Lanigan, Saskatchewan left idle since 1987. The Saskatoon, Saskatchewan-based company is doubling capital investment to more than C$400 million this year. Demand from China ``We are bringing back some of the capacity we have dormant so we can meet the demand'' from markets including China and Brazil, Betty-Ann Heggie, senior vice president of corporate relations, said in a telephone interview. Toronto-based Inco Ltd., the world's second-biggest nickel producer, is spending $920 million to build a mine at Voisey's Bay in Newfoundland and Labrador to capitalize on a tripling of nickel prices over the past four years. Some companies are boosting investment to increase efficiency as they seek to make up for the Canadian dollar's 30 percent advance against its U.S. counterpart over the past three years, which has made exports more expensive. Transcontinental Inc., Canada's No. 2 printer, spent C$68 million on equipment and property in the first half of this year, compared with C$28 million in the year-earlier period. ``As a result of this, we're going to be very, very competitive on the U.S. market, even if we produce from Canada,'' said Daniel Denault, chief financial officer of Montreal-based Transcontinental. Gains in efficiency may convince the central bank that Canadian companies are prepared to withstand an increase in borrowing costs, said Andrew Pyle, an economist at Scotia Capital Inc. in Toronto. ``Bank of Canada is obviously expecting strong growth in business spending on machinery and equipment,'' he said. That will reinforce its view that Canada ``has made a very significant adjustment to exchange rates and higher energy prices.'' To contact the reporter on this story: Theo Argitis at targitis@Bloomberg.net. Last Updated: August 29, 2005 14:50 EDT http://www.bloomberg.com/apps/news?pid=10000082&sid=aarGMm3UDHdE&refer=canada

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