Private sector will start spending again soon, reversing the trend that saw a huge decrease in the value of projects this year, regional economist says

A prominent policy analyst in the region says corporate and consumer spending will do an abrupt about-face if the current trends hold and the economy bounces back from the recession.

Analyst expects there will be a big rush in capital improvements in coming months as manufacturers and exporters begin making the investments they put off in more uncertain times earlier in the year.

“What I’m starting to hear is a little bit more confidence about starting to build again,” said Charles Cirtwill, executive vice-president of the Atlantic Institute for Market Studies, a Halifax-based independent think-tank. “If past practice is anything to go by, we’ll be cautious for maybe six months, maybe a year. But then we’ll get aggressive and start spending again.”

And that, he said, will be good news for the provincial government which built its budget around tax breaks and record capital spending.

“The whole idea in New Brunswick is that the government has gone out on a limb and responded to the recession by taking a big hit on the revenue side on the basis that will encourage people to be very aggressive on the spending side,” Cirtwill said. “New Brunswick has actually designed to encourage people to spend more than they have in the past.

“From the government’s perspective, if we go out and spend like drunken sailors, that’s a win.”

Cirtwill was commenting on a recent report that noted capital spending intentions in New Brunswick had dropped 19.3 per cent since the start of the year.

The report, based on a Statistics Canada survey, said public and private sector spending on capital projects was expected to be $3.26 billion this year. That was a revision of an earlier forecast that called for $4.04 billion in capital expenditures this year. The first survey was taken late last year and early this year, while the data for the revision was collected in May and June.

The much lower revised figure is surprising, especially in light of the province’s March budget that allocated $600 million-plus in capital spending.

Cirtwill said it’s possible the original figure included anticipated federal stimulus spending. He has heard the critics who’ve been complaining that the stimulus funding is flowing fast enough, but he has an opposite view.

“From my perspective, it’s actually not a bad thing if the big piles of stimulus cash that we were trotting around promising to everybody and their mother six to eight months ago doesn’t come to fruition,” he said.

“We’re already seeing growing evidence that the economy has turned around in the United States and globally France and Germany have now already met the technical definition of coming out of the recession. So from my perspective if spending is down and yet the recession has turned, that’s actually a nice combination.”

Cirtwill said earlier in the year as the economy worsened, companies learned credit was either unavailable or it could be had at a higher premium.

“A lot of projects were being put on hold or even cancelled – a lot of construction was put on hold,” he said. “And my sense is that it hasn’t come back on stream. $800 million sounds a bit high to me, but it’s entirely possible.”

Cirtwill also expects there will be a big rush in capital improvements in coming months as manufacturers and exporters begin making the investments they put off in more uncertain times earlier in the year.

“Those folks who want to buy equipment and machinery from the U.S. are going to have to do it soon or it’s going to be more expensive.”