Canadian manufacturers must ‘step up their game,’ economist warns

Jtaylor March 12, 2012 0
Canadian manufacturers must ‘step up their game,’ economist warns

OTTAWA — Canada’s manufacturing industry will continue to rebound in 2012, but with the same problems plaguing it now as before the economic downturn, it is destined to remain a shadow of its former self, says TD Economics.

While machinery and auto-parts production will lead gains this year, overall growth will be “limited,” said economist Dina Cover, who forecasts output will rise by three to four per cent.

“The sector’s share of total output is not likely to exceed the pre-recession rate of 14 per cent in the foreseeable future, let alone return to the 18 per cent seen a decade ago. This doesn’t bode well for employment in the sector, as it will not likely rebound to the levels seen prior to the recession,” Cover said in the report.

While output has clawed its way back by 13 per cent since mid-2009 — although it still remains about four per cent below pre-recession levels — employment has not fared so well, with only a third of the jobs lost during the recession recouped.

As a share of total Canadian employment, manufacturing now accounts for less than 10 per cent compared with a peak of over 16 per cent in 2000, the report notes.

Looking ahead, that picture is likely to remain largely unchanged, with total employment in factory jobs likely to account for 10 to 11 per cent of the national total, Cover said.

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The decline in manufacturing has been apparent since 2000, when the benefits of low energy costs, a dollar worth 60 to 70 cents US and relatively low labour costs began to dissipate.

Since then, the sector has gone from employing more than two million workers to less than 1.5 million today.

Central Canada has been hardest hit. While jobs have crept back, Ontario’s output remains more than 20 per cent below the 2000 peak. Quebec continued to shed jobs in 2011, and the sector’s share of total employment was at a record low of 12 per cent in both provinces last year.

Machinery production is the only sector to have surpassed pre-recession levels, while autos have rebounded by 90 per cent. Food processing, meanwhile, was the only sector to grow during the recession, and with 232,000 jobs, it employs more workers than any other manufacturing industry.

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As 2012 unfolds, manufacturers will continue to face the double whammy of high energy costs and a high-flying loonie that’s here to stay, according to the report. Meanwhile, low productivity in Canada has resulted in unit labour costs that now surpass those in the United States.

Manufacturers have a choice, invest or shrink, as cash-strapped governments focused on shoring up their balance sheets will be of little assistance, and the advantage of low corporate tax rates may be mitigated by U.S. moves to cut rates there, Cover said.

“Canada needs to step up its game — not only to attract new investment, but also to keep the manufacturing base that currently exists. While cost cutting will certainly help, businesses are also going to have to become more capital intensive.”

The sector must also continue to diversify away from its reliance on exports to the U.S., Cover said, citing efforts by Ottawa to land new free-trade agreements, including one with Europe.

[Postmedia News]

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