After Donald Trump’s win in the US election, there was widespread discussion over the potential benefits for Canada: it was even suggested that some parts of Silicon Valley could move across the border. In reality, the Canadian economy is falling further behind the US. Real investment in intellectual property products dropped to 1.42% of GDP in Q4, the lowest since Q3 1993. This compares with a record 4.34% of GDP in the US in Q4 2016. The big US tech companies have ramped up R&D in a bid to secure first-mover advantage in a range of promising new sectors (driverless cars, the Internet of Things, satellite communications etc). By contrast, Canadian IPP has declined 30.4% since the peak in Q1 2008.
In the US, the acceleration in investment into R&D has driven jobs growth. Payrolls in scientific R&D services have risen 11.7% since October 2013, hitting a new high of 701.5k in March. By contrast, real spending on R&D in Canada totalled just 0.54% of GDP in Q4 last year. Software investment was only 0.73% of GDP, compared with 2.10% in the US.
Summary
- Tech investment lags the US and China by a long way: Canada remains too reliant on fossil fuels
- C$ vulnerable to rise of renewables
- Soft inflation may tempt BoC to stay on hold, but house prices are accelerating: debt burden far too high
