Canada’s Central Provinces Struggle
Interview conducted by Rachel Duran
Editor’s Note: This interview was conducted July 19, 2013. For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.
The Canadian economy suffered two setbacks in the second quarter of 2013; flooding in Alberta and a two-week construction worker strike in Québec. Overall, the housing markets and business investments have been weak, leading to a forecasted 1.7 percent growth rate in regard to Canada’s GDP.
However, positive signs are emerging and stronger growth in the U.S. economy will have an impact on Canada in regard to stronger trade numbers in 2014, which will benefit the central provinces, Ontario and Québec, who are not experiencing strong growth in their economies.
Global Corporate Xpansion: When we last visited about the Canadian economy, weak consumer spending and the public sector’s fiscal austerity were hindering the economy. Where are we as we get ready to enter the second half of the year?
Marie-Christine Bernard: Our forecast calls for quite modest growth in Canada in 2013. In the second half we see fiscal restraint in government spending in terms of programming and infrastructure. The public sector won’t really be adding to the economy this year; and only marginally in 2014.
We also see modest growth in employment and consumer demand. There have also been shocks to the economy. In Alberta we had major flooding which affected business activity at the end of June. Later in the year, however, we should see a boost from the flooding because some of the infrastructure will need to be repaired, as well as housing, public buildings and businesses.
In other activity, in Québec, there was a two week strike in the construction sector.
So these are two factors that will pull down growth in the second quarter for Canada.
We should see a rebound going forward with the efforts to clean up from the impact of the floods. The construction strike was resolved when the government ordered the workers back to work.
In other news, we are seeing stronger growth in the U.S. economy, which will have an impact on Canada with stronger trade numbers in 2014, relative to what we see this year. This will benefit the central provinces, Ontario and Québec, who right now do not see strong growth in their economies.
When we speak of business investment, it has been very difficult this year. We have seen a bit of a slowdown in the housing market. Not too serious but there will be a decline in residential investment.
As for the other segment of investment, things are weaker for private nonresidential investment.
One of the sectors most affected is the mining sector. Prices came down last year for most mining commodities. Companies are reviewing their plans, putting some projects on hold or not spending on exploration, which has an impact on private nonresidential investment.
We are also seeing a weakening of investments in machinery and equipment but that should be temporary as the economy gains speed and the U.S. economy improves.
So for Canada, we haven’t really changed our outlook too much. We expect the Canadian dollar to stay below par the rest of 2013 and in 2014. We forecast a growth rate of 1.7 percent for 2013, and 2.4 percent for 2014, which is quite similar to what we discussed earlier this year.
GCX: What’s new in Ontario’s economy? The auto sector is important to the province. How is it performing?
Bernard: We have seen weak growth in Ontario’s economy in 2013. There is a large automotive industry in the province; however, it was running close to capacity so we have not seen any big increases coming from automobile production.
This applies to the entire manufacturing sector, which is not doing well this year. Ontario will see a decline in terms of volumes or activity in the manufacturing sector.
We thought Ontario’s economy would hold steady in terms of real GDP growth but we are seeing quite weak growth. Last year Ontario’s economy grew by 1.5 percent. And this year it looks like it will not grow much more than 1.2 percent.
The weaknesses in Ontario have been quite similar to Canada’s. Ontario has seen a weakening in the housing market. There were a lot of new condo projects that started last year, so there have been fewer housing starts this year. That will probably linger into 2014 because the supply of condos will need to be absorbed in 2014.
Also in Ontario, in terms of government investment, there is a longer-term plan to balance the books by 2017 and 2018. So there is not much growth coming from the government sector. There is a little more in terms of program spending but there will be restraint over the next few years.
In regard to business investments, there is the decline in residential investment this year and next year, and nonresidential investment is also coming down this year.
Ontario has a fairly significant mining sector and this year there has been a retrenchment in exploration spending.
There should also be a decline in machinery and equipment business investment.
So there is not much growth coming from investment or gross fixed capital formation in Ontario.
As for consumers in Ontario, consumer demand has been soft so far this year. We probably won’t see much improvement in terms of consumer spending until next year when more broad based growth is expected from the economy. It is very similar to the Canadian outlook for GDP growth. This year the economy will grow by 1.1 percent or 1.2 percent. In 2014, growth will be much stronger, advancing to 2.2 percent.
GCX: And what is the outlook for the economy in Québec?
Bernard: Québec’s economy is doing a bit better this year than Ontario, but not by much.The economy is growing to 1.4 percent this year, and will increase to 2.1 percent in 2014. It has the same area of weakness as Ontario with not much growth coming out of exports or the manufacturing sector.
The mining sector has been hit strongly, where some investment projects were cancelled or postponed. Production was also cut back. The mining industry in Québec was growing strongly in 2012.
Other areas in terms of manufacturing are also weak. In fact, we have not seen a lot of growth coming out of manufacturing in quite a while in Québec.
The government is planning to balance the books this fiscal year, 2013-2014. They are keeping a tight grip on program spending. We will not see much growth coming from the government sector. However, they were planning to invest more in infrastructure so there won’t be a decline in terms of public investment this year. The decline will come later, perhaps in one or two years.
The strike by construction workers did affect GDP growth in Québec. We will probably see a decline in nonresidential investment and investment in general in the second quarter due to the strike.
We should see stronger business investment; however, in 2014. It will take more time for the mining industry to come back because prices are still soft.
There is one positive factor for the investment sector in Québec. The province has put forward another significant block of wind power available for residents.
I believe it is a 1,000-megawatt project, which means about a $1 billion investment in 2014 and 2015. Over the past few years about $3 to $4 billion was invested in wind power capacity. There aren’t definite plans yet, but the government has announced the new project.
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.