manufacturing-business

After a difficult decade that saw the number of Canadian manufacturing firms fall by 20% and the sector’s share of GDP drop to 12%, a report from CIBC World Markets finds many industries are ready to reverse that trend.

“Though some failed to survive, many who did are stronger, leaner and more productive,” says Benjamin Tal, deputy chief economist at CIBC. “The long and painful adjustment is starting to pay off, with many industries better positioned to take advantage of the weaker dollar to regain positions in U.S. markets and better integrate into global supply chain opportunities.”

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With currency and market conditions improving, Tal and CIBC Economist, Nick Exarhos analyzed the sector to rank which industries have best adapted.

These are:

  • Wood product
  • Primary metal
  • Machinery
  • Aerospace
  • Computer and electronic
  • Miscellaneous
  • Plastics and rubber
  • Paper

Their research found the wood products industry is the best positioned for success. They cite strong productivity growth since the beginning of the recovery and the benefits of a lower Canadian dollar, which should see the wood products industry continue to be a leader in exports to the U.S. The only negative is a relatively high level of capacity utilization. However, with continued growth the industry will likely see a strong pace of investment to meet demand.

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Primary metals ranked second in growth prospects having had the best productivity growth since 2009.

“The industry is also well positioned to take advantage of a stronger U.S. economy, accounting for more than 25% of total U.S. imports,” says Tal. “At only 2% below its long-term average, however, growth might be limited by capacity constraints, a fact that also suggests a stronger path of capital spending in the coming years.”

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Ranked third is machinery manufacturing, which has the strongest net export position in all of the manufacturing sub-industry groups. “With the majority of the current market belonging to foreign imports of machinery, it is best positioned to capitalize on a swooning loonie driving up the price of imported competition,” he adds. “Despite having registered less than stellar productivity gains since 2009, capacity constraints, here too, may mean more capital investment in the near future.”

The report notes the aerospace sub-industry group is another that will benefit from a weaker loonie due to its advantageous net exports and import penetration positions. These factors led to it being ranked higher than its transportation industry group parent, even though the parent sector has shown more productivity growth (25% vs. 10%).

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However, productivity gains in the broad industry group have been driven by plant closures and capacity downsizing which have hampered its net exports position, leaving it behind that of aerospace.

“A name surprisingly absent from the top of our rankings is the food manufacturing industry,” notes Mr. Tal. “In recent years that industry has been a winner, primarily in the domestic market sense, but has had a less impressive net export ranking.

“Furthermore, because it has fared better than most of its peers, it has not had to increase its productivity as fast as others, marking a slight 2% gain since 2009. Because domestic manufacturing already takes up so much of the Canadian market, it will have to nurture its export markets in search of growth.”

Originally published on Advisor.ca

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