Quebec: Improving, but still sluggish

“Last year wasn’t a very good year for Quebec,” says Marie-Christine Bernard, associate director, provincial economic trends, with the Conference Board of Canada in Ottawa. “There wasn’t any job creation, so the main problem was domestic demand.”

However, Quebec’s economy should register slightly stronger growth of 1.7%-2% in 2015, particularly as export activity improves. Healthier economic conditions in Ontario and the U.S. have begun to bolster demand for Quebec exports across all product categories, including such key industries as aerospace, metals and forestry. Merchandise exports grew by 7.7% in 2014, as of December, on a constant-dollar basis, according to a report from Royal Bank of Canada. That growth is expected to continue this year, particularly as exporters benefit from the recent depreciation of the Canadian dollar (C$).

“The export sector is doing very well now,” says Hélène Bégin, senior economist with Lévis, Que.-based Desjardins Group. “We saw a nice acceleration last year, and I think it’s going to be even better in 2015.”

Another factor that bodes well for Quebec’s economy is the lower price of oil, which translates into lower gas prices for consumers and reduced costs for businesses of all kinds.

“We estimate that the energy price drop should give $2 billion into the pockets of consumers and businesses in Quebec,” says Bégin. “There are benefits for almost all industries in Quebec.”

These tailwinds are expected to fuel gradual improvement in domestic economic conditions in 2015 – in particular, a healthier job market. After employment creation stalled in 2014, a report from the Conference Board forecasts that 45,000 jobs will be created in 2015, which is closer to the long-term average level for the province.

“We were a bit surprised by the weakness that we saw in employment in 2014,” says Bernard. “With the economy doing a bit better, we are forecasting that employment will come back.”

Business investment also is showing signs of improvement this year. A variety of major projects are planned for the province, with some already underway. For example, construction on Montreal-based Stornoway Diamond Corp.’s $1-billion Renard diamond mine in north-central Quebec, which began in mid-2014, is set to continue through to 2016.

In addition, plans to build a new $2-billion fertilizer plant in Bécancour, Que. – although temporarily on hold as the project’s developers seek new partners – are expected to move forward in the months to come.

Hydro-Québec also is investing quite heavily throughout the province, as the utility increases capacity to meet growing demand for electricity, according to Bernard.

Those projects are encouraging for the province, particularly at a time when the provincial government is dialling back its spending in its quest to balance the budget in fiscal 2015-16. Annual infrastructure spending (excluding government-owned corporations, such as Hydro-Québec) is poised to decline to $8.5 billion from $11.5 billion over the next two years.

The provincial government also is conducting a broader review of program spending across all portfolios, implementing cost savings wherever possible.

“There’s not much stimulus coming from the government,” says Bernard. “It’s looking at all of its program spending and conducting a big overhaul of its programs.”

Although income tax hikes have not been announced as part of the provincial government’s fiscal austerity plan, the government has announced various revenue-generating measures that will hit consumers in other ways. These include the reduction of certain tax credits, higher gasoline taxes and a revamped daycare system that will force many families to begin paying more than the province’s current universal rate of $7.30 per child per day.

Even though the financial impact on consumers is not expected to be significant, these new measures will take a toll on consumer confidence, according to Bégin. Given that confidence levels in Quebec are already depressed, thanks to the weak state of the labour market, she adds, this shaky consumer confidence is a concern.

“Confidence is well below the historical average, and it’s very different from what we see elsewhere in North America. So, we have to be very cautious,” Bégin says. “I think that’s the main risk for Quebec’s economy.”

Despite the likelihood that the austerity measures will weigh on economic growth in the near term, however, the fiscal reforms represent necessary steps toward balancing the provincial budget, reducing debt and making government programs more sustainable in the long run.

“The province still is spending, and [that spending] still is growing, but it’s more controlled and more in line with the economy, which will be beneficial in the longer term,” says Bernard. “I think [the province] actually is doing quite well on that front.”

Quebec

Population:8,214,672

GDP, 2013 ($bil.):362.8

GDP % change:+1.5

2014-15 deficit ($Bil.):2.3

Estimated net debt ($bil.):181.3

Per capita wage growth, % change, 2013-14:+2.2

Household disposable income, per capita:$26,809

Figures from latest available reports/estimates

Sources: Conference board of Canada; Province IE chart

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