Canada Weighed Down by Uncertainties and Austerity Programs
Interview conducted by Rachel Duran
Editor’s Note: This interview was conducted May 9, 2013. For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.
Canada’s economy is expected to expand moderately in 2013, hindered by weak consumer spending and fiscal austerity at the federal, and in some cases, provincial levels. Uncertainties in regard to the global economy, including when the recovery in the United States will be running on all cylinders, isn’t helping the Canadian forecast.
At a regional level, Canada’s Prairie Provinces, Saskatchewan and Manitoba, are beneficiaries of sound economic activity. Both are undergoing increases in job creation, leading to elevated activity in the housing and construction sectors. What’s more, mineral resources in both provinces are enticing increased investments in mining-related activities.
Global Corporate Xpansion: Highlight the state of the Canadian economy at this point in the year.
Marie-Christine Bernard: The Canadian economy slowed down in 2012, especially in the second half of the year. Moderate growth will carry on in 2013. The economy grew by 1.8 percent last year, and we expect the same growth for 2013.
We see a continuation of the moderation in consumer spending. The debt levels for households are elevated.
We will also continue to face fiscal austerity. There is not much growth in terms of government spending on programs and infrastructure. The federal government is pulling back in order to balance the budget in the next few years. And, at the provincial levels, most provinces are in a restraint mode.
We will see less investment in housing structures this year. Growth in the housing sector has moderated, depending on the area of the country. Markets in Ontario and British Columbia, particularly in Vancouver, are suffering. In British Columbia, the resale market is suffering the most. In Ontario, both new and resale housing are cooling off.
In regard to Canada’s trade sector, we will see a slight improvement in exports. We are still waiting for a stronger recovery in the U.S. economy.
We are still experiencing growth in imports. There is a lot of investment in machinery and equipment. The dollar is high so companies are taking advantage of that.
In regard to employment, we haven’t posted strong numbers for employment growth in Canada, and job losses in the past few months are making things more difficult for households.
Looking into the future, the forecast for 2014 finds the Canadian economy improving, with a growth rate of 2.5 percent.
We will see stronger numbers on the trade side as the United States continues to improve. We should also see stronger consumer demand, and stronger employment growth.
And, the restraint by governments will not be as severe due to the fact that some of the provinces will have reached a balance by then.
GCX: Let’s talk about Canada’s Prairie Provinces, Saskatchewan and Manitoba. First, highlight the state of Manitoba’s economy.
Bernard: In 2012, Manitoba’s economy grew by 2.7 percent. It was mainly fueled by the strong rebound in the agriculture sector. It was a volatile sector, where flooding in 2010 and 2011 prevented the sector from doing well.
Also in 2012, prices for agriculture commodities were elevated.
At the same time, in regard to the mining sector, Manitoba has a lot of mineral resources, and is home to an expanding oil industry.
The province’s service sector economy grew moderately in 2012. The province benefits from strong population growth. Manitoba has a successful program to attract immigrants to the province for specific skilled jobs that need to be filled. That should continue this year as well.
The strong population growth means people have to find somewhere to live. So housing starts in Manitoba will remain elevated. This is a different story than in Ontario and British Columbia.
In the last budget, the provincial government put some incentives together, especially to support the build out of multi-unit housing. There is a lot of construction activity in the housing sector.
Job creation has also been strong in Manitoba. We see fairly good results in terms of consumer demand for retail goods. We also see strong financial and real estate sectors in the province.
The one area that has been difficult for Manitoba is the manufacturing sector. It is a similar case across the country; but if you compare Manitoba with the other Western provinces, it is struggling more with manufacturing. The province’s two main manufacturing industries are aerospace and public transit buses.
The aerospace industry is taking longer to recover. And the public transit sector depends a lot on public sector budgets. This sector also relies on exports to the United States, but it should be doing better over the near term as backlog orders for transit buses have been rising.
For Manitoba, we forecast growth of 2.2 percent for 2013, and 2.3 percent for 2014. This is a relatively good performance compared to Canada, where growth will be below 2 percent.
One thing to watch: The province faces risks in the agriculture sector at the moment because there is a risk of flooding in both Manitoba and Saskatchewan. We will have to see how this unfolds, in terms of seeding, and if we will have a good performance.
GCX: Let’s move to Manitoba’s neighbor to the west. What is the latest in regard to the economy in Saskatchewan?
Bernard: Saskatchewan is a different economy. The province is doing very well, which isn’t really seen in the GDP numbers for 2012, which showed the economy advanced by 2.2 percent.
In terms of mining, the potash industry was held back last year. China and India held back on signing new contracts. They wanted lower prices. So potash companies adjusted their production. This decline in production held back real GDP growth in Saskatchewan.
But otherwise, employment is booming. It grew by 2.2 percent in 2012. And we expect it to grow by 3.6 percent in 2013. There was a lot of job creation in the province between January and April; year-to-date it is up 4.4 percent. Job creation in the construction industry is up 20 percent.
Additionally, this year the province will see a rebound in potash production. New contracts were signed with China at the end of last year, and more recently, with India. The industry is expanding operations to add new capacity. The industry has invested several billion dollars, creating an economic boom in the province.
Saskatchewan is also experiencing an influx of new people, both internationally and inter-provincially. The government is spending more on infrastructure to accommodate the rise in the population. Things are very favorable for the construction industry.
The province’s manufacturing industry is benefiting from all the developments in the potash industry and the mining industry in general. It is not a big part of the economy, but it is expanding.
Saskatchewan is also in good fiscal shape, even though fiscal revenues are dependent on commodity prices. It is the only province that did not run a fiscal deficit during the past few years.
We forecast Saskatchewan’s economy to grow strongly by close to 4 percent in 2013; and by 2.7 percent in 2014. The province did well in 2010 and 2011, when the economy grew by almost 5 percent.
GCX: Marie-Christine, let’s sum things up and discuss how the Canadian economy will develop as we head into the second half of the year.
Bernard: Risks include fiscal restraints, and how long they will weigh on the economy.
The recovery in the United States is usually beneficial to Canada; we have yet to see a strong rebound in the U.S. economy. We are seeing it in the housing sector, but overall, the trade numbers to the United States haven’t picked up that much.
What’s more, there is some slack in the labor market, but once we see stronger growth in 2014 and 2015, labor markets will tighten up. In addition, there are skills shortages; people don’t have the skills to fill the available jobs. It is a big concern now. The federal government is addressing the challenge with training programs and trying to restrict the number of temporary foreign workers who are working in Canada so Canadians can fill these jobs. It has been an ongoing issue, and it is structural to the economy.
Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by e-mailing email@example.com. The Conference Board of Canada is the foremost independent, not-for-profit, applied research organization in Canada. Visit the organization at www.conferenceboard.ca.