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Business investment still stoking growth

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Consumers led economic growth in 2006, but business investment also helped to stoke the growth. Canadian shoppers spent 4.2% more in 2006 than in the previous year—their strongest shopping spree since 1997. Still, business investment to construct homes, infrastructure, and commercial and industrial buildings grew even faster, 7.1%, although less money was involved than in consumer expenditures.

Fixed capital investment—mainly the real estate boom—has accounted for a considerable share of the annual gains in GDP since 2003. Climbing prices and greater demand for homes have created strong annual growth for homebuilders since 2000—14.1% in 2002 alone.

Handy Canadians have also helped to fuel the boom in residential investment. Home renovation outlays had their eighth consecutive year of robust growth in 2006, at 7.1%.

However, as the overall pace of investment in residential construction slowed in the last two years to 2.1% growth by the end of 2006, business investment in non-residential structures, machinery and equipment quickened and topped 9.9%.

Big-spending consumers are partly responsible. As more shoppers flock to stores, companies often invest in building more stores, malls and warehouses to meet demand. But clearly the oil and gas boom in Western Canada is also a major factor in non-residential investment. The boom has spurred large-scale infrastructure expansion—particularly in and around Alberta’s oil sands: investment nearly doubled in 2005.