Business Has Been Investing – Just Not in Machinery and Equipment Spending on non- residential capital rose with the commodity price boom and is being sustained by public sector spending Spending on machinery and equipment has been relatively weak since the 2009 recession This weakness is partly due to changes in the value of the Canadian dollar which encouraged M&E spending after 2003 but reversed in 2013 Source: Statistics Canada, data from 1961 to 2015 Employment rate is the proportion of the working age population that is employed Capital-output index is the ratio of undepreciated constant dollar capital (by type) divided by constant dollar GDP with an index value of 100 in 2007

Business Investment in Canada Lags the Competition Business investment in Canada is consistent with historical trends but… C.D. Howe Institute research finds that business investment spending per worker lags the US and the OECD average 81% of OECD and just 69% of US average in 2015 Source: C.D.Howe Institute, A Crisis of Capital: Canadian Workers Need More Tools, Buildings and Equipment (2015). Table 1a/b

The Outlook for 2016 and 2017 is Mixed M&E spending down 4% in 2016 (-$3.4 billion) but up 4% in 2017 Auto sales +3% in 2016 but -4% in 2017 Interest rates could rise in 2017: Three month T- bill rates up to 1.1% in 2017 from 0.5% and 10 year GOC yields up to 2.3% from 2.0% Source: Statistics Canada, DesRosiers Automotive Consultants Inc., The Centre for Spatial Economics

Public & Private Investment Spending: the downturn spreads

Beyond mining... now service sector weakness

CFLA Market Size Estimate Methodology Statistics Canada: Capital and Repair Expenditures Survey PMG Intelligence: CFLA Equipment Financing Market Research (2015) CFLA: Small company membership data PayNet: Canadian Equipment Lending Indices DesRosiers Automotive Consultants Inc: Vehicle Finance Model

From PMG Intelligence Survey Results to CFLA Market Size Estimates Number of businesses in Canada X Proportion that purchase M&E in 2015 Mean % of time transaction is financed Median value of equipment financed = Estimated market By: Customer Sector (Goods/Services) Customer Size (Small/Medium/Large) Range of New Business Finance Estimates for Private Business Spending in 2015 and % change from 2013: Low: $22.2 billion (-22%) to High: $46.1 billion (+62%) with Average: $30.6 billion (+7%) so… CFLA Est: $29.6 billion (+4%)

Asset-based Finance Market in 2015 New business up 5% in 2015 to $117b Finance assets up 7% in 2015 to $354b Fleet new business up 23% and retail vehicles up 6% in 2015 M&E (excluding fleet) new business down 4% in 2015

Market Penetration Remains Strong Equipment & commercial vehicle finance penetration rates remain strong Retail vehicle finance rates also robust with leasing continuing to make gains

New Business Finance by Instrument & Source Equipment & commercial vehicles: 34% lease, 44% banks New & used retail vehicles: 21% lease, 51% banks and 39% manufacturers’ captives

Minimal Immediate Benefits from M&E Spending This analysis is based on public and private spending on machinery, equipment and commercial vehicle spending using an input-output model of the Canadian economy $1 of spending on new machinery, equipment and commercial vehicles adds about $0.25 of GDP to the economy at the direct level – the remainder is imported Adding indirect impacts (spending on suppliers etc.) raises the impact on GDP to just over $0.40

Long-term Economic Benefits of M&E Spending $35 billion of new asset financing in 2015 added $17 billion to the economy in 2015 and will add $20 billion to the economy over the next 5 years; raising the cumulative discounted value of GDP by $50 billion For every dollar spent on new M&E, new production from that capital adds the equivalent of $1.40 to the economy over the next 25 years This analysis is based on public and private spending on machinery, equipment and commercial vehicle spending allocated by province and sector across Canada using the C4SE’s Provincial Economic Modelling System