When will government stimulus impact growth?

Economist Benjamin Reitzes is keeping his eye on government spending as a prop for growth.

The BMO senior economist notes that total government investment rose at a 2.7% annualized pace in Q2, according to Statistics Canada, and that federal and provincial stimulus measures should help growth in the second half of the year.

“That’s the first increase in investment after four consecutive quarterly contractions on that front,” Reitzes says. In the same quarter, the economy contracted at an annualized rate of 1.6%, while posting a gain of 0.6% in June.

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But opinions on the effects of government stimulus are mixed.

A Nanos Research survey for Bloomberg News found that the Trudeau government’s tax stimulus measures — enhanced child benefits and income tax cuts — may not be having their intended impacts on spending.

Nanos polled 1,000 people August 22 to August 25, and found that parents receiving the child benefits are using them mostly to pay bills or debts. On average, respondents who received additional child benefits said they would use 47% to pay bills, 19% for savings and 14% for debt payments. Only 15% would go to new spending, survey respondents said.

Both the BoC and the Liberal government have called the expanded child benefits a boost to the economy.

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The Trudeau government’s infrastructure stimulus has also been slow to make an impact, with most of the $60 billion in new spending happening in the second phase of a 10-year period.

Reitzes says the federal measures should support consumer spending and that he expects government investment across Canada to tick up.

“I think it’s a sign of what’s coming,” he says of the Q2 government investment data. “You’re going to see continued gains on that front, and governments should continue to be supportive of growth, generally.”

The BoC left rates unchanged this week after it has expressed disappointment in softer-than-expected exports.

“We have to be patient,” BoC deputy governor Timothy Lane said in a speech on Thursday. “Our biggest export market, which is the U.S., is starting to look a lot a brighter than it was, and the Canadian dollar has been pulled down with the price of oil, so it’s now at a much more competitive level.”

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