Central Canada on an Economic Rally
Interview conducted by Rachel Duran
Editor’s Note: This interview was conducted December 13, 2013. For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.
Better times are expected for Central Canada, according to the fall 2013 “Provincial Outlook Executive Summary,” issued by the Conference Board of Canada. The economic strengths in Canada are bolstered by the stronger U.S. economy, improvements in the global economy, and increased private investments in the country.
Specifically, according to the executive summary, Québec’s economy will gain momentum as business and consumer confidence improves. The provincial government has announced a series of measures to boost private investment, which combined with improved conditions, will encourage businesses to hire and move ahead with their investment projects.
The executive summary also notes that although Ontario’s manufacturing sector continues at a slow pace, the province’s services sector will drive the economy. The sector’s strengths will lead to steady employment and income gains. The economy is projected to add 300,000 jobs from 2013 to 2015, mostly in commercial business services, wholesale and retail trade and health care.
Rachel Duran: Why the optimistic outlook for the Central Canadian provinces?
Marie-Christine Bernard: The last few years have been particularly difficult in Ontario and Québec, and the provinces have experienced fiscal challenges.
In Ontario, there is still a lot of fiscal tightening and public and civil servants aren’t getting wage increases. The government has not raised taxes but it is controlling expenses quite tightly.
At the same time, the rest of the economy, especially in the first part of 2013, did not do as well; Ontario’s exports didn’t grow in 2013.
The province depends a lot on the auto industry. The majority of the production in Ontario is exported to the United States. So even though U.S. vehicle sales are at more elevated levels, Ontario has not really benefited.
There are two main reasons. One, the mix of products produced in Ontario is not as in high demand as it once was, such as with minivans. The market demand is for crossover utility vehicles.
Also, a lot of investment in the auto industry is not going to Ontario but to southern U.S. states and Mexico. The medium term prospects for the industry are limited, with no new assembly plants planned, and no announcements by companies that they are adding shifts to production. We will see small increases in terms of auto manufacturing in Ontario.
The recovery in the U.S. economy and housing market bodes well for Ontario.
We expect stronger investments in the United States, where we are seeing reshoring instead of outsourcing of investments.
The U.S. economy will do better, with economic growth of more than 3 percent, and possibly higher in 2014.This growth benefits Ontario, which still exports the majority of its products to the United States. The country remains its key external market. Other provinces have diversified and are exporting more to Asian markets.
So with the United States doing better, we are going to see a pickup in Ontario’s trade.
In regard to Ontario’s domestic economy, it has been doing better than it was at the beginning of 2013, which will carry into 2014. We anticipate the mining sector to face more positive prospects as commodity prices stabilize as the global economy performs better.
So the forecast for Ontario is that we should see growth of 2 percent, perhaps above 2 percent, in real terms, for 2014; and a bit better in 2015 as these same conditions continue to improve.
Duran: Highlight Ontario’s neighboring province, Québec. The economy has been challenging. What can we expect?
Bernard: Québec has not done well in 2013, and its economic performance will be weaker than Ontario’s. The job market did not do well; with little job creation.
With no job creation, consumer demand was very weak, creating a pull-back in investments.
Positive developments are taking shape with the recovery in exports. The majority of Canada’s provinces have seen a fairly good pickup in exports since the end of the recession; this didn’t really materialize for Québec. The province’s main industry is aerospace, which took longer to get back on its feet. With the U.S. economy performing better and lifting demand for regional jets the aerospace industry is expected to see a stronger performance over the next term.
In addition, a new aircraft, the C-series, which Bombardier has been developing over the past few years, will be in production. This production will bolster the prospects for the aerospace industry, which represents 20 percent of all exports out of Québec. And other companies are contributing to the development of the aircraft. This activity will support 12,000 new jobs in the Montréal region. It is a significant project and will help shore up exports.
Another sector hit hard in Québec, not just because of the recession or the fact that the U.S. housing market was not doing well, is the forestry sector. In the last 10 years the industry has declined and sawmills shut down. The forestry sector is coming back due to the growing U.S. housing market. The growth we saw in 2013 should continue in 2014 and 2015.
However, the industry is starting from a low level. In the last 10 years about 40 percent of capacity was lost; but the sector is coming back. It will be another industry supporting the province’s exports, just to name a few.
We will see stronger exports, and manufacturing activities. What’s more, conditions will stabilize with investments, in particular in the mining industry.
With business confidence coming back and the global economy doing better there will be an uptick in private investment in Québec. And that should be enough to provide more dynamics to the labor market, resulting in a strong pickup in job creation throughout 2014 and 2015.
The province’s economic growth was less than 1 percent in 2013, and will be a bit above 2 percent for most of 2014 and 2015.
Duran: What does the pickup in the central province economies mean to Canada overall?
Bernard: Overall we are expecting a better economic outlook, with the U.S. economy being one that will help the country’s exports in general, not just in central Canada.
The domestic side of the economy will continue to hum along, and interest rates will remain low. In terms of growth, for Canada it was less than 2 percent in 2013, at about 1.7 percent. Our forecast is 2.3 percent growth for 2014, and 2.6 percent growth for 2015.
Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by emailing 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.
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