Economic clouds not so dark

By Staff | June 12, 2008 | Last updated on June 12, 2008
3 min read

The Canadian economy, as a whole, is in better shape than most people believe, according to Avery Shenfeld, managing director and senior economist for CIBC World Markets. But not surprisingly, that strength is regionally focused.

“Where oil, gas, potash and metallurgical coal and other commodities in high global demand are the core of the economy, growth is constrained only by tight labour markets,” Shenfeld says in his latest provincial forecast. “Where core products are autos and parts, lumber, tourism and other goods and services aimed at U.S. buyers, Canada is, like its American cousin, verging on or in recession this year.”

To put it bluntly, resource exports continue to fuel the economy, while manufacturing centres suffer. While overall economic production may have faltered in the first quarter of 2008, Shenfeld says personal disposable incomes rose 7.3% on an annualized basis.

Shenfeld says rebranding Ontario as a “have-not” province would be premature. Despite losing thousands of manufacturing jobs over the past few years, the province still boasts after-tax personal incomes higher than the national average. That may be changing, but not because of problems in Ontario.

“Other provinces that had earlier seen harder times are coming out of their shell and benefiting from improvements in their economic base,” says Shenfeld. “This is a positive story of improved income equality.”

With incomes rising across the country, most provincial governments are enjoying an increase in their tax revenues. Budget surpluses in the western provinces will get an additional bump from energy royalties.

“As a result, we expect that aggregate provincial deficits will still be lower than forecast, even with disappointments in real growth in the eastern half of the country,” Shenfeld says.

There is a ray of hope for the manufacturing economies, however. A study by American Express found that many Canadian companies are looking to boost their productivity in the face of a global economic slowdown. While this will include cutting costs, there may also be a window of opportunity for equipment manufacturers.

The first annual American Express/CFO Research Global Business & Spending Monitor shows that companies continue to pursue growth strategies, despite a pessimistic view of the economy and relatively conservative spending plans.

“In Canada, the mood is far more optimistic about domestic economic prospects than in the U.S. Companies are looking to preserve the bottom line by prudently managing expenses while also looking to proactively drive top-line growth,” said Andrew Pilkington, vice-president and general manager, global commercial card and merchant services Canada at American Express.

Savings realized by cutting discretionary spending are expected to be redeployed into investments in organization, technology and process improvements.

“The biggest difference from the last downturn in 2001 is that companies see that cutting investments too deeply can be counterproductive in the long term,” says Andrew Pilkington. “The survey suggests the way to long-term prosperity is to build positive momentum rather than put on the brakes during uncertain times.”

Looking back, 42% of Canadian respondents said they should have invested more to improve production process efficiency, while 33% said they should have invested more to improve administrative processes.

This time around, 56% say they plan to invest more to improve production efficiency over the next 12 months, while 55% plan to invest more to expand market reach. staff


The staff of have been covering news for financial advisors since 1998.