Investment in Canada’s Industrial Sector Drops to Lowest Level on Record: Bank Report

Workers position pipe during construction of the Trans Mountain pipeline expansion in Abbotsford, B.C., on May 3, 2023. The Canadian Press/Darryl Dyck

Real investment in industrial machinery and equipment in Canada has dropped to the lowest level on record, according to a new report by the National Bank of Canada (NBC).

In its report released Sept. 12, the researchers looked at the latest national accounts data for the second quarter of 2025, and found that Canada’s investment in industrial machinery and equipment has fallen below any level on record, which dates back to 1981.

The report said the decline in industrial investment can be attributed to “years of excessive regulation, and a chronic lack of ambition by successive governments in promoting domestic transformation of our natural resources.” It noted the decline has recently worsened due to “Washington’s protectionist agenda.”

The researchers said Ottawa’s waning investments in the industrial sector has “eroded Canada’s manufacturing base and left us at risk of becoming irrelevant in global supply chains.”

However, the bank noted Prime Minister Mark Carney’s pledge to increase defence spending to meet NATO’s spending target of 2 percent of GDP by the end of this fiscal year, and the new 5 percent target by 2035, could “catalyze a reindustrialization.” The bank warned that “time is of the essence” for rebuilding Canada’s industrial sector.

“What Canada needs is a wartime multi-pronged strategy that ends the dithering: a competitive tax regime, a sweeping reduction in red tape, and clear laws on how we intend to develop our natural resources,” the report reads.

Canada and the United States followed a similar trend in industrial machinery and equipment investment until around 2012, when the United States continued to trend upward, while Canada’s investment began to decline, reaching a new low this year, according to a chart provided by the banks’ economics and strategy team that drew from Statistics Canada and U.S. Bureau of Economic Analysis data.

Deregulation

NBC released three recommendations in recent months as part of its vision to “make Canada investable again” by closing the country’s valuation gap, rebuilding industrial competitiveness, and re-attracting long-term private capital.

Noting the country’s capital stock has fallen below pre-North American Free Trade Agreement levels, and with regulatory burdens surging at more than 320,000 federal regulatory requirements, NBC said Canada is no longer part of the world’s top 20 industrially competitive nations. This makes Canada the only G7 country absent from this group.

Canada must deregulate to rebuild its industrial base, NBC said in a July 2 report, noting that Ottawa passing Bill C-5 to expedite major projects deemed to be of national interest aims to have a positive effect on the economy, but that the government needs to “get out of the way.”

On July 9, the Liberal government launched a review of federal regulations in an effort to improve government efficiency and “catalyze more private capital.” The Treasury Board said inefficient red tape has been raising costs, reducing productivity, and stifling economic growth.

Federal departments and agencies were given 60 days to report back to Treasury Board President Shafqat Ali with proposals to remove outdated regulations or eliminate duplication with provincial rules.

Natural Gas

NBC also recommended that the federal government formally recognize natural gas as a “transition fuel,” noting that it would “provide a realistic and financially sustainable pathway for decarbonization and unlock capital investment.”

“Like in other countries, manufacturing in Canada is highly energy-intensive, drawing nearly 34% of its energy from natural gas and 29% from electricity,” NBC said in a July 21 report.

Natural gas accounts for more than half of total energy use in 11 of Canada’s 21 main manufacturing sub-sectors, the report said, noting that the food manufacturing, beverage and tobacco, fabricated metals, textiles, and chemicals sectors exceed the 60 percent mark.

Additionally, prices of natural gas in Canada are 77 percent below the G7 average and 50 percent lower than in the United States, making it “critical for affordability and energy security” to fill the gaps that electricity cannot.

“Reframing natural gas within Canada’s climate strategy would also strengthen the case for expanding the Canadian Mainline, aligning energy infrastructure with national economic and environmental goals,” NBC said.

Guncotton

NBC’s third recommendation to “make Canada investable again” includes converting wood pulp into nitrocellulose, also known as guncotton, which is the propellant base for 155 millimetre artillery shells that Canada already produces.

Currently, Canada imports nitrocellulose to produce its munitions, despite being “one of the world’s largest wood-pulp producers,” NBC said in an Aug. 28 report.

The bank says producing nitrocellulose in Canada would “strengthen NATO supply chains, support Ukraine and Europe, and reduce exposure to foreign bottlenecks.”

“By adding this layer of value to our forestry sector, Canada would not only de-risk allied defence production but also capture economic benefits at home,” the report says, calling this a “dual-use industrial strategy” that would leverage Canada’s natural resources into strategic manufacturing capacity.

Noé Chartier contributed to this report.