5 Factors Threatening the Canadian Economy: Business’ “Dead Money”
For the past two days during our mini-series on the biggest threats to the Canadian economy, we’ve focused mostly on household and consumer spending. But as we all know it can’t just be consumers that support the economy, businesses have to do their share too. But those businesses also ran into trouble during the recession and that’s caused them to now be one of the biggest threats to the Canadian economy. Or at least their stockpiles of “dead money” are.
Former Bank of Canada Governor, Mark Carney, created quite a stir late last year, when he pointed to the amount of “dead money” Canadian businesses were sitting on, and pointing to the threat that this posed to our economy. While his comments weren’t met without some backlash, he continually said that he “stood by every word” that he said. And Finance Minister Jim Flaherty agreed with him.
That amount of “dead money” equates to over $500 billion that’s not being dispersed into the economy. This is cash that businesses stockpiled during the years of the recession when Canadian companies found it just as hard, if not even more difficult, than consumers to find lending.
But Carney warned that those times were over, and that it was time for businesses to release that cash into the economy. And, he bluntly stated, if the businesses didn’t know what to do with the cash, they should give it back to their shareholders.
While the new Bank of Canada governor said that he wouldn’t be making any strides toward this “dead money” businesses are sitting on, he did say at just the beginning of this month that households have done their job, and that it’s time for the businesses to step up.
“The good news is that the balance sheets of corporate Canada are healthy and the capacity to invest exists,” Poloz said when speaking to the Oakville Chamber of Commerce in early June.
Whether or not businesses will fill that capacity with investments remains yet to be seen. The investment plans of Canadian businesses are currently at the lowest they’ve been since 1995. That fact alone poses a significant threat considering that business investment is so important for future profits, as well as job creation.