Toronto is making a fresh push to attract global capital, with officials and business leaders pitching Canada as a land of renewed economic ambition. But according to KPMG Canada, the enthusiasm on display at this week's investment summit may not be enough to overcome a significant hurdle: higher borrowing costs.
The summit comes at a time when Canada is trying to reposition itself as a reliable destination for foreign investment, particularly in sectors like energy, artificial intelligence, and defense. The country has been working to diversify its export base beyond the United States, a shift that could make it more attractive to international investors looking for stable, long-term opportunities.
Why higher borrowing costs matter
When interest rates rise, the cost of financing new projects increases. For companies considering building factories, expanding operations, or investing in Canadian infrastructure, those higher costs can make projects less profitable or even unviable. This is especially true for capital-intensive industries like energy and manufacturing, where upfront costs are large and payback periods are long.
KPMG Canada's warning highlights a key tension: while investor interest may be piqued by Canada's economic story, the actual decision to commit capital depends on the numbers adding up. With borrowing costs elevated, many firms may choose to wait, delay, or look elsewhere for cheaper opportunities.
The global environment is also competitive. Canada is not the only country courting foreign investment. Other nations, particularly in Asia and Europe, are offering incentives, streamlined regulations, and lower costs to attract the same pool of capital. This means Toronto's pitch must be compelling enough to stand out in a crowded field.
What this means for investors
For everyday investors, the outcome of this summit could have ripple effects. If Canada successfully attracts foreign capital, it could boost economic growth, create jobs, and support the performance of Canadian stocks and the Canadian dollar. On the other hand, if higher borrowing costs and competition dampen investment, growth could be slower than hoped.
Investors should also keep an eye on how the government and corporations respond to these challenges. Some companies are already stepping up. For instance, TD has pledged CA$150 billion to finance Canada's energy, AI, and defense push, a sign that major financial institutions are willing to back the country's ambitions. Such commitments could help offset some of the headwinds from higher rates.
Inflation is another factor to watch. Canada's inflation has been running around 3%, with energy costs keeping prices elevated. If inflation remains sticky, the central bank may be less inclined to cut interest rates, which would keep borrowing costs high for longer. That would make it even harder for investment projects to get off the ground.
On the positive side, Canada's growth story is evolving. Exports are becoming more diversified beyond the United States, which could reduce the country's vulnerability to U.S. economic swings and make it a more attractive investment destination. This diversification is part of the "renewed economic ambition" that KPMG refers to.
What to watch next
Investors will be watching for concrete announcements from the summit, such as new investment commitments, partnerships, or policy changes. The tone of the discussions and the level of engagement from foreign investors will also be telling. If the summit produces tangible deals, it could signal that Canada's pitch is working despite the rate environment.
Another key indicator will be the performance of the TSX Composite Index. The index has been a barometer of investor confidence in Canadian markets, and any sustained inflows of foreign capital could support its performance. Recent changes to index membership rules, which make it easier for companies to join, could also play a role in attracting investment.
Beyond the summit, investors should monitor global bond yields. Rising yields, driven by inflation fears, can make borrowing more expensive worldwide and reduce the appeal of riskier assets like stocks. If yields continue to climb, the challenge for Canada—and other countries seeking investment—will only grow.
Ultimately, KPMG Canada's caution is a reminder that investor sentiment and actual capital flows are not the same thing. While the summit may generate buzz, the real test will be whether that buzz translates into projects, jobs, and growth. For now, the smart approach for investors is to watch how the numbers evolve, rather than getting caught up in the excitement of the moment.
