A mixed picture for Quebec

RBC is predicting real gross domestic product (GDP) growth of 1.3% for Quebec in 2015. Slightly stronger growth is forecast for this year, at 1.9%.

However, the elements for stronger economic growth are already in place, notes Hogue: “Some capacity has been lost since the recession. This takes time [to rebuild], but the opportunities are there.”

The Conference Board of Canada concurs – and is more optimistic. “This sluggishness is temporary,” says Elise Martin, an economist at the Conference Board in Ottawa. She also predicts a stronger economic landscape for Quebec over the next two years: GDP growth of 2.2% in 2016 and 2% in 2017.

Manufacturing will be a bright light. “In the past 10 to 15 years, that sector has suffered a big blow. There has been a shift in Canada from the resources sector to the non-resources sector. Quebec is well positioned,” says Martin. “There is a revitalization of the manufacturing sector.”

Exports boost GDP

According to numbers from the Institut de la statistique du Québec in Quebec City, manufacturing grew by 1.3% in the first seven months of 2015, and merchandise exports rose by 5.3% in the first nine months of the year. And the sector is gearing up and looking outside Quebec’s borders for opportunities.

The Manufacturers and Exporters of Quebec (MEQ) has signed a strategic partnership with Expansion Québec (both based in Montreal) to facilitate the exporting and implementation of Quebec companies abroad. The exclusive agreement, inked earlier this year, will allow MEQ’s 800 member companies access to 11 Expansion Québec business offices throughout the world and a helping hand from experts in these local markets.

“Having access to a network is the first step of an establishment abroad approach,” says MEQ president Eric Tétrault. “It is crucial for our companies to have this support.”

Export sales in Quebec rose strongly by 9.5% between January to August of last year, bucking the national trend of softness in exports and marking the second-fastest rate of expansion across all regions, according to a report from Toronto-Dominion Bank (TD).

Aerospace and primary metal manufacturing exports, particularly aluminum and alumina processing, have led the charge to date. Adds the TD report: “Looking ahead, the export sector is projected to maintain a healthy pace of activity, helped by robust growth in U.S. demand and a weaker loonie. This bodes well for Quebec’s manufacturing sector, with the machinery and aerospace industries expected to be top-performing industries.”

Industries such as these distinguish and bolster Quebec’s economy to a great extent, says Hogue. “Quebec’s strength is in [industries] you don’t see to the same degree in other [regions],” he says. “For example, aerospace; it’s an integrated economy.”

Although Quebec’s economy is dominated by the services sector, which produces about 70% of all goods and services, natural resources also play a key economic role. One strong sector is forestry, says Martin: “For a long time, it was progressing more slowly, but it is now in a better position.”

Strong U.S. housing

That improved outlook for the forestry and wood-processing industries, which boast more than 400 primary processing plants and employ approximately 80,000 people, is built in large part on the rebounding U.S. housing market, which is at its strongest level since 2009. That growth increases demand for lumber from Quebec, and the Conference Board is predicting a 6.8% increase in that industry this year.

Hogue adds that another encouraging economic note is the fact that employment rose by 1% in the first 11 months of 2015, a welcome turnaround from no growth at all in the previous year.

Still, he cautions, Quebec faces a serious demographic problem due to its aging population.

“The draining effect on economic growth is felt more here than in most other places, except Atlantic Canada,” he notes.

Quebec’s provincial government has pledged to balance its budget this fiscal year and reduce the gross debt from 55.1% of GDP to 50.6% by 2020.

“This is realistic,” notes Martin. “Quebec has been living beyond its means.”

Consumer spending has remained strong despite the fiscal restraint measures imposed by the provincial government.

A report from Quebec’s Ministry of Finance predicts that consumer spending grew by 1.4% in 2015, mirroring the previous year, and will increase by 2.3% in 2016.

This spending growth is occurring despite public restraint measures.

“Government has reduced program spending,” says Martin. “People are feeling the effects of austerity spending and fiscal belt-tightening.”

QUEBEC

Population:8,258,662

GDP, 2014 ($bil.):370

GDP, % change:2.5

2015-16 deficit ($Bil.):0.0

Estimated net debt ($bil.):203

per capita wage growth, % change, 2015:1.8

Household disposable income, per capita:$27,963

Figures from latest available reports/estimates

Sources: Conference Board of Canada; Province

IE chart

© 2016 Investment Executive. All rights reserved.