Strong economic growth in late 2009 and early 2010, helped by the effects of fiscal stimulus and resurgent commodity prices, allowed Canada to lead all G7 nations in gross domestic product (GDP) growth in the initial stages of recovery from the global financial crisis. However, the effects of additional government spending have waned, putting downward pressure on domestic demand, according to Review of the Canadian Economy, an annual Manufacturers Alliance/MAPI report.
The G7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
Jeremy A. Leonard, MAPI economic consultant and report author, notes that while resurgent investment spending has filled some of the domestic demand gap, continued weakness in the U.S., coupled with a strong Canadian currency, have stalled exports. Exports have traditionally been a large contributor to economic activity during the initial stages of recovery, particularly for the manufacturing sector.
Real GDP growth in Canada is expected to be 3 percent in 2010 before decelerating to 2.5 percent in 2011. The trade sector is expected to be a net drag on the overall economy in 2011 as imports are forecast to grow faster than exports, and will add very little to growth in 2012 when 2.7 percent growth is anticipated.
The recovery in Canada’s manufacturing sector has been muted, especially considering the 15 percent decline in output during the recession. Manufacturing GDP has grown by only 10 percent since, leaving the sector’s level of output almost 10 percent below pre-recession levels.
In a forecast of selected economic indicators for 2011, pre-tax corporate profits are expected to grow by 7 percent, exports to increase by 5 percent, and imports to increase by 6.9 percent. Consumer spending is anticipated to grow by 3.2 percent, and real disposable income should increase by 2.5 percent in 2011.
The national unemployment rate increased from 6 percent to 8.7 percent during the recession but has fallen back to 7.6 percent over the past year, although there is considerable variation across provinces.
Beginning with the current report, MAPI inaugurates a forecasting model for 15 Canadian manufacturing industries, which together account for 80 percent of total manufacturing output. It suggests that the manufacturing recovery will be uneven. In general, durable goods industries have been expanding more rapidly than nondurable goods industries, reflecting strength in capital goods demand. Anticipated growth leaders for 2011 include primary and fabricated metals, machinery, computer and electronic products, and chemicals, while textiles and plastic and rubber will likely decline.
“While strong domestic business and household balance sheets will continue to underpin growth in consumption and capital investment in the year ahead, relative weakness in the housing market and export sector will keep total GDP growth at a moderate level,” Leonard said.