What makes the current economic cycle in Canada so unique and exciting is that it is being fuelled by Austrian school supply-side dynamics, not the Keynesian demand-centric experience south of the border that ultimately has proven to be unsustainable. This is not a housing-led expansion, nor is the Canadian economy being driven by spurious consumer spending, which came in at a paltry 1.6% annual rate in Q2. Commercial construction is barely growing at all. Moreover, government spending (in volume terms) has not been a big player.
No, this expansion is being driven by impressive rates of growth in capital spending, which in turn will lead to sustainable employment growth and help increase the private sector capital stock, with important positive implications for future productivity trends. Business capital expenditures in real terms have risen for six quarters in a row and have expanded 20% on a year-over-year basis — 10 times the pace of the rest of the economy — which is a development the country has experienced but a handful of times in the past five decades.
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