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Canada’s Weak Economy Gains as U.S. Economy Strengthens 

canada-annual focus

Interview by Rachel Duran

Newfoundland’s economy leads the Atlantic Coast provinces.

Editor’s Note: For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.

In October, Canada’s economy was forecast to grow less than 2 percent in 2012. However, even with the drag on the economy from the public sector, in 2013, there will be a pickup in jobs in the private sector, increasing consumer confidence and consumer demand. As the U.S. economy continues to make small gains in growth, Canada’s trade sector will continue to improve, including the forestry sector, and the auto sector, which made a bit of a comeback this year.

The Conference Board of Canada’s Marie-Christine Bernard tells us where Atlantic Canada figures into the overall economy. Bernard, an economist, weighs on the strengths and challenges in the region. She also comments on the impact the U.S. presidential election may have on Canada’s economy.

Global Corporate Xpansion: What is the status of the Canadian economy as we round out the year and prepare for 2013?

Marie-Christine Bernard: The economy is a little weaker than what we anticipated for 2012. There is more risk in the global economy. And we are seeing that in the trade numbers, which are weaker.

The United States is slowly coming back, which led us to revise our forecast for 2012. It looks like Canada will grow by less than 2 percent.

In 2013, we are projecting growth of 2.3 percent. The story will be the same as this year, with some weakness in terms of cuts to the public sector and government spending in programs, and for infrastructure. Both areas were boosted during the recession and afterwards.

But now the government is committed to balance the books by fiscal year 2014-2015. The public sector will be a drag on the economy in 2013.

In other areas of the economy we have seen modest consumer growth, which we predict will improve a bit in 2013 when we see stronger job creation. Job creation was moderate at the end of 2011 and beginning of 2012. The pickup in labor markets in 2013 will help income gains, and increase consumer demand and consumer confidence.

Canada’s trade sector will continue to improve as the U.S. economy gets back on its feet. We should see improvement in terms of exports, in particular with regard to products that have been hit quite hard, such as forestry products. We have seen a resurgence of auto exports out of Ontario and that should continue in 2013 because we see an increase in U.S. vehicle sales. People are replacing older vehicles with more gas-efficient vehicles. There has been a pent up demand that accumulated over the years.

To sum things up, our story hasn’t changed that much since the last time we spoke. There is still uncertainty in Europe. We do not trade a lot with Europe but it affects the global economy and business confidence, which has repercussions in Canada.

Nova Scotia won the biggest part of a 20-year contract to build new combat ships to replace our aging combat ships. The contract will provide a lot of benefits for the province. The project will ramp up in the next few years so we will see most of the peak activity beyond the medium term. Right now there is an upgrading of facilities to accommodate the large project, so the province is not seeing benefits in the economy due to the upfront investment. Peak activity is scheduled to occur around 2018, which will have a positive impact on Nova Scotia in the long term.

GCX: You mentioned job creation would pick up; what sectors will increase?

Bernard: We have seen a bit of an increase in the manufacturing sector — something we hadn’t seen in a while. These numbers don’t compensate for all the jobs that were lost but the sector is coming back gradually.

The bulk of the job creation next year will be on service side, as it has been over the past few years. With consumer demand improving, we will see more jobs created in retail and wholesale trade.

In the primary sector, the mining industry has been expanding quite rapidly in Canada. There are large projects in development, which means there will be a lot of job creation.

Construction activities are doing quite well. There are many expansions in the energy sector, as well as expansions in the commercial and industrial sectors.

GCX: What role will the Atlantic Provinces play in the forecast?

Bernard: Things have been difficult for this region, in particular for Nova Scotia and New Brunswick. However, Newfoundland has done pretty well. There are large construction projects in development, including Vale NL Ltd.’s smelter for nickel, located in the Voisey Bay. The nickel used to be shipped to Manitoba for processing. Over the past two years Vale has been building the processing plant, a project worth a couple of billion dollars. It is having a large impact in this small province.

Also in Newfoundland, there is development in the energy sector, and the expansion of iron ore mines. Newfoundland is also heavily influenced by oil production, which represents a quarter of the province’s economy. The three major oil projects are producing less oil as they mature. Because the industry has such an effect in the province’s overall economy, the real growth isn’t reflected in the GDP; income gains are up and the housing market is hot, so these numbers are interesting.

GCX: What about the other provinces in Atlantic Canada?

Bernard: It is more difficult for the other three provinces in Atlantic Canada, New Brunswick, Nova Scotia and Prince Edward Island. There have been job losses in Nova Scotia and New Brunswick. Nova Scotia is catching up; but things are still difficult in New Brunswick. There is a lack of major construction projects in the region; when there were many in the past.

Also, the Atlantic region is dependent on how the U.S. economy performs, so they have had a difficult time in the manufacturing sector and their primary industries.

There was barely any growth in 2011 in Nova Scotia and New Brunswick; and we forecast weak growth in 2012 and 2013. It will take a few years before we see stronger growth.

GCX: Will some of the growth be tied to the billions of dollars coming to Nova Scotia to carry out a federal defense contract?

Bernard: Nova Scotia won the biggest part of a 20-year contract to build new combat ships to replace our aging combat ships. The contract will provide a lot of benefits for the province. The project will ramp up in the next few years so we will see most of the peak activity beyond the medium term.

Right now there is an upgrading of facilities to accommodate the large project, so the province is not seeing benefits in the economy due to the upfront investment.

Peak activity is scheduled to occur around 2018, which will have a positive impact on Nova Scotia in the long term. It will assist in keeping the talent base in the region, as many of the younger workers have been leaving Atlantic Canada for better employment opportunities out West.

GCX: Shifting gears, in regard to the overall economy, here in the United States, with the presidential election nearing, things slow down. What affect does the election in the country to your south have on your projections?

Bernard: The U.S. forecast has a big impact on Canada; nearly 80 percent of our trade is with the United States. We make some assumptions, not around who will win the election but around the economy, regarding the Bush administration’s tax cuts and if they will be extended or not; and what will happen in regard to the health care system.

We forecast a business as usual scenario.  If the tax cuts are extended or some form of stimulus is put in place than we have the U.S. economy growing by 2.4 percent next year; we have projected growth of 2.3 percent for this year. It should take another year or two before we see stronger growth coming out of the U.S. economy. That obviously impacts the Canadian forecast. We have diversified our trade sector over the past few years, but the United States remains our main trading partner.

Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by e-mailing bernard@conferenceboard.ca. The Conference Board of Canada is the foremost independent, not-for-profit, applied research organization in Canada. Visit the organization at www.conferenceboard.ca.

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About the author: Rachel Duran

Rachel Duran is the editor in chief for Global Corporate Xpansion. Contact her at rduran@latitude3.com.

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