- Florence Jean-Jacobs
Principal Economist
Economic News
Canada: Private Sector Investment Finished the Year on a More Positive Note
February 27, 2026
Highlights
- Real business sector investment in non-residential structures and machinery and equipment finally ticked up in Q4 2025 (+2.0% q/q annualized), after three quarters of decline (graph 1). Overall, real capital formation in these categories in 2025 was 0.3% below 2024 (see table for details).
- A majority of investment categories posted increases, with notable gains in machinery and equipment. Real investment in computers and computer peripheral equipment grew by 104.7% q/q annualized (a record not seen since 1991).
- Business expenditures on intellectual property products also grew, driven by the strength of mineral exploration (up 24.9% in real terms, after 4 consecutive quarterly declines). Research and development (R&D) and software spending also advanced in the quarter.
- After deteriorating in the first two quarters of the year, profits of Canadian non-financial corporations reversed course in the second half of 2025 (graph 2). Operating profits were up 5.2% q/q annualized in the last quarter of the year, driven by the mining industry, which benefited from higher gold prices External link.. Primary metal manufacturing also posted a rise in operating profits, due to higher sales. Lower prices of refined petroleum drove down profits for the petroleum product manufacturing sector in Q4. Finally, operating profits in the motor vehicle and parts manufacturing industry were adversely affected by a semiconductor chip shortage that drove down production at assembly plants.
Implications
The business sector finally turned a corner in Q4. The increase in non-residential business investment was driven by increased capital spending on machinery and equipment (M&E) (+12.3% q/q annualized in real terms). This was not enough, however, to offset the declines in the previous two quarters in M&E (-19.4% in Q2 and -12.8% in Q3). Strong growth in computer equipment spending in Q4 could be a sign that businesses are investing in new technology, possibly linked to accelerating AI adoption, especially given the simultaneous increase in software spending.
Meanwhile, operating profits of non-financial corporations have held steady over much of the year, despite major trade disruptions. Although sectoral tariffs hit certain trade-exposed industries hard External link., on average, Canadian businesses are starting 2026 from a position of relative resilience. Companies are still taking a cautious approach to hiring and investment, but our research suggests that profitability and solvency ratios have held up.
This is positive news, as turmoil could be on the horizon for the months leading to the first joint review of the Canada-US-Mexico Agreement External link. (CUSMA). Businesses will need to continue navigating uncertainty and building resilience by diversifying to new markets and investing in productivity enhancing technology. While investment intentions perked up in Q4, according to the Bank of Canada Business Outlook External link., spending is likely to be mostly used for equipment maintenance rather than improving productivity.
In all, despite one quarter of encouraging growth in capital expenditures—and record advances in IT equipment—the Canadian business sector still has catching up to do with its southern neighbour (graph 3).
