Economists at National Bank Financial predict that the stronger Canadian dollar will prompt businesses to begin substituting capital investment in place of hiring.

NBF economists say that the global economic expansion remains on track despite OPEC’s recent decision to cut oil production.

As the well the NBF team says that the U.S. economy is on track to grow at least 4% for a third consecutive quarter, the first such string in a decade. For Canada, they see, “The strength of the loonie resulting in capital-labour substitution over the coming year.”

“Canadian producers must strive to control costs in order to increase profitability,” they argue, noting that unit labour costs in Canada’s nonfarm business sector are currently up 2.8% from a year ago. In the U.S., by contrast, they are down 1.9% from a year ago.

Current conditions are good for companies willing to invest, they say. “One of the silver linings of Canadian-dollar appreciation is that productivity investment, which is import-intensive, now costs less. For the first time since 1991, firms can boost output more cheaply by buying equipment than by adding to payrolls. We expect this development to result in capital-labour substitution over the coming year.”It currently forecasts job growth of just 1% in 2004, down from 2.2% in 2003.

The NBF team predicts that the Canadian economy should see fourth quarter growth of about 3% annualized. “Encouragingly, the labour market remains sound and consumer and business confidence are rising,” they note.