Oct 2016
Minimize
Canadian Economy Pins Hopes on U.S.

By Tim Triplett, Editor-in-Chief

Canada’s economy, which is highly dependent on the energy sector, will most likely suffer from persistently weak oil and gas prices again in 2017, said Michael Holden, chief economist for the Canadian Manufacturers & Exporters Association. Holden spoke on the state of the Canadian economy during the Metals Service Center Institute’s Forecast Summit Sept. 13 in Chicago.

Energy is Canada’s No. 1 export, mostly to the United States, and the collapse in oil prices has dealt a serious blow to the nation’s economic growth. Canada’s GDP saw only 1.1 percent growth in 2015 and is tracking below 1.5 percent in 2016.

Canada’s economy was also hurt by wildfires that devastated the city of Fort McMurray, Alberta, earlier this year. Canadian GDP dipped by 1.6 percent in the second quarter. Absent the fire, the nation’s GDP would have been slightly positive. “The fire had a massive impact in May,” Holden said, but rebuilding in the city should help the economy snap back in the third and fourth quarters.

These setbacks have delayed the transition expected by the Bank of Canada for the market to pivot from a consumer-led to an export-led economy, as the relatively weak Canadian dollar gives an advantage to exporters sending goods to the United States. But sluggish growth and business investment in the U.S. has dampened demand for Canadian goods, while currency volatility has muted the expected benefits of a lower exchange rate.

Canada typically experiences a big trade surplus in oil and natural gas, but a trade deficit in most other goods. Today, the mix has changed, Holden said. Manufacturing activity and exports have been relatively strong in areas other than energy. Automotive and parts production are a source of strength for Canada, though much of the auto industry’s recent investment has bypassed Canada for Mexico. “The Canadian auto sector is having a heck of a time competing with Mexico. As an area for new activity, automotive is not looking as positive,” he said.

Canada has lost a lot of manufacturing to Mexico and other countries in the past few decades, but the industries that remain are operating near capacity, such as wood, pulp/paper, furniture and transportation. Future growth in manufacturing activity will be constrained without a new round of capital investment by Canadian businesses, Holden said. Capital investment in mining and energy has plunged by over 50 percent in the last two years, but other investment has increased by 6.3 percent due to strength in the service sector.

Outside of energy, the rest of the Canadian economy is growing at a rate around 2 percent, largely on the strength of a hot real estate market. Home prices in Toronto and Vancouver are among the highest in the world. “Real estate is dramatically outpacing the rest of the economy,” Holden said.

Canadian consumers are still spending, buoyed by cheap gasoline prices and low interest rates. The wealth effect from high home values adds to consumers’ willingness to wield their credit cards. Job security varies widely, depending on where one lives. Unemployment in oil-dependent provinces such as Alberta and Saskatchewan is extremely high, while job growth in the manufacturing regions to the east is fairly positive, Holden said.

The Canadian government has taken steps to stimulate the economy, including funding for infrastructure improvements. Pipeline and other energy capital projects already in the works will be completed, but new energy-related projects face political and regulatory stumbling blocks and environmental opposition on both sides of the border. Construction of new roads, bridges and public transit should create new jobs to replace some of the thousands lost in the oilfields, but weakness in the labor market and capital spending levels will continue to be troublesome next year, Holden said.

Holden forecasts a bit of a recovery for Canadian GDP in 2017 to about 1.8 percent, fueled by a slight recovery in energy prices and better demand from the U.S. “A lot of companies are pinning their hopes on a stronger U.S. market,” he added. “Energy will not be a growth engine for Canada for another few years.”
April 2017: Bell Shares Vision for Trade Remedies
More...
 
Pause
April 2017: Outlook Positive, But Prices May Peak
More...
Fall 2016: Cutting & Sawing Equipment
More...
Summer 2016
More...
 
Pause
Advanced Controls on Braner Slitters
More...
AHVS Precision Leveler Features Flip-Top Design
More...
Formtek’s Tishken Slitter Increases Production Volume
More...
Red Bud System Handles High-Strength Steels
More...
Bradbury Launches Flat Trak CL Monitoring System
More...
Artus Knives Custom Designed
More...
 
Pause
Privacy Statement  |  Terms Of Use
Copyright by Metal Center News



Saturday, April 29, 2017