Your Business News
Manufacturing is leading Canada’s economy out of recession, though domestic and global challenges remain, new report shows
July 19, 2021
Authored by RSM Canada LLP
Joe Reilly, CPA, CA, CBV shared this article
THE REAL ECONOMY
RSM Canada ("RSM"), a leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its summer 2021 issue of "The Real Economy: Canada" – a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth, or economic headwinds, in Canada's middle market.
With lockdown restrictions lifting from coast-to-coast, the third edition of this year’s “The Real Economy: Canada” report examines what strong performances from Canada’s manufacturing and housing sectors mean for Canada’s long-term growth, and how that growth may be stifled due to ongoing trade tensions with the United States and lagging business investment. The report also shines a light on resiliency in the energy sector, and how Toronto and Vancouver have managed to recession-proof their economies.
Key findings in this quarter’s report include:
Canada’s manufacturing sector is outperforming pre-pandemic levels
- Q1 manufacturing sales & railway car loadings surpassed pre-pandemic outputs.
- Rising consumer expectations coincided with the rebound in manufacturing new orders, which shows the importance of the production sector in downstream economic activity.
- Ontario stands to gain exponentially from automotive brand commitments to electric vehicle investment following shifting consumer & business expectations.
Canada’s housing market remains bullish
- Housing sector remains at the forefront of North America’s economic recovery despite headwinds facing the housing ecosystem.
- Demand likely to continue as millennials become the backbone of consumer demand and the workplace.
- Continuing spikes in household savings indicates we may see greater housing market investment once consumers deem the pandemic less of an economic threat.
- Tariff reduction – particularly on Canadian lumber – will also be necessary to sustain the sectors performance.
Toronto and Vancouver proving resilient despite adverse economic conditions
- Accumulation of new-economy businesses in technology, media and entertainment have allowed both business hubs to prosper.
- Both talent supplies greatly benefit from access to premier academic institutions, proximity to U.S. & Asian markets, and accommodative government policies.
- Vancouver’s technology sector has grown at a 29 per cent annual rate – the fastest in North America – while Toronto has grown its reputation as a digital incubator.
The return of American industrial policy may heighten CAN-U.S. trade tensions
- Canadian manufactured products face market challenges in wake of Biden’s ‘Buy American’ provisions.
- Nearly two-thirds of Canada’s GDP depends on trade; the U.S. represented 73 per cent of Canadian exports in 2020.
- Canada could feel indirect effects of latest U.S. industrial legislation if it fails to keep pace with its southern neighbour.
- Canada’s attempts to diversify its trade market with countries like China, which only represents 5 per cent of domestic exports, has had mixed results to-date.
Business investment continues to hit a wall
- Total business investment remains over 14 per cent below pre-COVID levels, which signals trouble for Canada’s long-term economic development.
- Increases in household disposable income continue to outpace consumption, indicating further consumer sector imbalance.
- Refocusing the economy on strengthening the labour force and its ability to produce diversified items of value will be key to attracting capital long-term.
Despite turmoil, the energy sector’s importance to the economy has increased over recent years
- In 2020, energy products comprised 18.4 per cent of Canada’s total exports to the United States, up from 8.7 per cent in 1998.
- In the first quarter of 2021, that ratio has grown even more extreme, with energy products accounting for 21.9 per cent of Canada’s total exports to the United States.
- The timeline of transition to an all-electric economy remains undefined, suggesting a floor under the price of oil in the medium term.
“Canada’s manufacturing sector has almost singlehandedly pulled the country out of recession in recent months, and this strong performance, coupled with promising signs from other areas such as real estate and energy, suggests that better days are ahead for the economy”, says Alex Kotsopoulos, partner, projects and economics with RSM Canada. “But there’s still plenty of work to be done on the trade front. Canada’s over-reliance on the U.S. leaves it vulnerable to any trade frictions that happen between the two nations, and we’re seeing that effect now as the Biden administration continues to focus first and foremost on rebuilding the U.S. economy.”
Joe Brusuelas, chief economist with RSM US LLP., added: “While there are promising signs, business investment is still too low, and this is something that’s slowing down the potential for economic growth. Ultimately, the government needs to be investing in the middle market and investing in productivity through measures like the universal expansion of broadband coverage, childcare, housing and nutritional security. These commitments, coupled with the ability of the younger generations to work remotely, will allow for sustained growth.”
Call us at 1 855 363 3526 or fill out the form below and we'll contact you to discuss your specific situation.
Source: RSM Canada
Used with permission as a member of RSM Canada Alliance
RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit rsmcanada.com/aboutus for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.
FCR a proud member of RSM Canada Alliance, a premier affiliation of independent accounting and consulting firms across North America. RSM Canada Alliance provides our firm with access to resources of RSM, the leading provider of audit, tax and consulting services focused on the middle market. RSM Canada LLP is a licensed CPA firm and the Canadian member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM Canada Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how FCR can assist you, please call us at 1 855 363 3526