The manufacturing sector is in position to start to take over driving Canada’s economic growth from “an exhausted consumer and restrained government,” says a CIBC World Markets Inc. forecast.
Investment in machinery and equipment on both sides of the border to rise.
TORONTO: The manufacturing sector is in position to take over driving Canada’s economic growth from “an exhausted consumer and restrained government,” says a CIBC World Markets Inc. forecast.
The bank’s Not yet heaven in twenty eleven report says that although Canada’s economy in 2011 will look a lot like it did in 2010 starting with solid growth and ending the year a little short of forecasts, growth drivers will be fundamentally more sustainable. And there’s positive news about manufacturing: the sector is now in position to start expanding.
CIBC, which has raised its growth projection for the year by a half a point to 2.4%, says a slower build-up of government and private debt will cut into Canada’s GDP growth, which will otherwise see solid and more sustainable growth from a strengthening export market in the US and increased business investment.
One of the key drivers will be investment from Canadian and US companies in machinery and equipment fuelled by ongoing automotive sales, US incentives for business, and 10-year high rates of return on capital, says Avery Shenfeld, CIBC’s chief economist
Taking a closer look at manufacturing’s capacity utilization rate – 81% “a record six points above that of the rest of the economy” – suggests the sector is already in a position to start expanding, he says.
“The last time the utilization gap approached this level, in 1995, manufacturing investment advanced by an average annual rate of more than 10% for the following three years.”
He describes the increased investment as a payoff for recent cuts in corporate tax rates and “a spur to much needed productivity improvements.”
Jayson Myers, president and CEO of Canadian Manufacturers & Exporters (CME), says business investment and exports better be the drivers of economic growth.
“If I’m wrong, and manufacturing [business] investment and exports are not the key growth leaders in the Canadian economy, we’re in for a pretty rocky ride, “ he said during CME’s Gateway to Business Success webinar last week.
He observed Canadian consumers are “pretty much maxed out” with consumer debt at an all-time high in relation to after-tax income, the housing market will be weaker than last year with higher interest rates than last year, and governments across Canada will be tackling deficits so there won’t be a lot of stimulus spending.
The CME expects export volumes this year to rise 10%, and investments in machinery and equipment to grow 16.5%.