Quebec growth slows, but the outlook is brightening

Quebec's economic growth will slow this year, but it's expected to remain healthy enough to keep unemployment edging down and to lay the foundation for more robust expansion next year.
That's the latest forecast from Scotia Capital, where economist Alex Koustas sees a number of strengths that will help to soften the negative impact of tax increases, slowing consumer spending and the province's long-standing difficulty in attracting skilled immigrants.
The rising tax burden, however, is "really going to cause a bit of a drag" on growth, Koustas said yesterday. New taxes will pull $2.7 billion out of Quebecers' pockets this year in the form of health levies and increases in the provincial sales tax and gasoline tax.
All these will rise again next year, boosting the total cost to taxpayers in 2012 to $4.2 billion, according to provincial finance department estimates.
The dampening impact of these tax hikes on consumer spending, combined with a slowdown in Quebec's important U.S. export market, will leave the province with growth of just 2.3 per cent this year, the country's slowest outside Atlantic Canada.
Ontario, where the big auto-manufacturing sector is still rebounding from a disastrous slump during the recession, will do a little better than Quebec this year, growing by 2.5 per cent.
But the growth champions will be in Western Canada, where rising values for oil, potash and other resource products will help Alberta to expand by 4.2 per cent, Saskatchewan by 3.7 per cent and British Columbia by 2.9 per cent.
However, Quebec's performance still has a number of bright spots. A key one is the unemployment rate, which dipped below Ontario's in the recession year of 2009 for the first time in 30 years.
Back then, this looked as if it might be a temporary blip caused as much by the nearcollapse of Ontario's automakers as by Quebec's job creation.
on provincial economy
But the Quebec advantage has persisted, reinforced by the province's heavy spending on roads and power projects.
Unemployment in Quebec will fall to an average of 7.7 per cent this year from 8.0 per cent in 2010. This year's jobless rate will be higher than the national average of 7.5 per cent, but it remains below Ontario's forecast 8.1 per cent.
And now, a number of big Quebec industries are showing signs of strong expansion, suggesting that growth in the province will strengthen in 2012.
A key example is information technology, which accounts for more than five per cent of the provincial economy.
After hiring in this sector had stagnated during most of the past decade, it's been ramping up this year, Koustas said.
The prospects for further expansion are helped by a growing flow of venture capital, where Koustas said Quebec ranks among the top five or six destinations in North America.
Another keystone industry is aerospace manufacturing, whose turnaround is finally gaining momentum.
Orders for everything from business jets to components like flight simulators and landing gear have been rising.
This should be translated into actual shipments by late this year, bringing a positive contribution to economic growth in 2012.
Less visibly to those of us in Montreal, mining is becoming "one of the pacesetters for growth" in Quebec, said Koustas in his forecast:
"Multibillion-dollar investments are in play in the northern regions of the province, with gold and ironore mining set to make significant contributions to the economy. Mining investment and exploration have nearly doubled since 2005."
And finally, the cross-Canada cooling in home construction is being more than offset in Quebec by new projects in the industrial, mining and utility sectors, leaving the overall construction sector enjoying robust health.
Indeed, says the report, "the construction industry in Quebec finds itself in its best position since the 1970s, having grown by over 50 per cent since 2000," or faster than most of the province's other industries.
Over the longer run, though, Koustas noted that it remains "kind of worrisome" that Quebec still fails to attract many immigrants, leaving it vulnerable to stagnating growth as its workforce ages and begins drawing public pensions.
By far the largest chunk of Canada's international immigrants settle in Ontario, while in Quebec "the influx of talented workers is not exactly what you'd want it to be."

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