MRO Magazine

Outsourcing a key trend in Bank of Montreal outlook for Canada’s industries to 2006

Toronto, ON -- Dec. 11, 2002 -- The Bank of Montreal's outlook for 45 Canadian sectors for the period 2002 to 2006...


Industry

December 11, 2002
By MRO Magazine
MRO Magazine

Toronto, ON — Dec. 11, 2002 — The Bank of Montreal’s outlook for 45 Canadian sectors for the period 2002 to 2006 anticipates that overall economic growth in both the United States and Canada to accelerate to the 4% mark in 2003, moderately above long-term potential, as the lagged impact of stimulative monetary and fiscal policy encourages the re-employment of excess capacity built up during 2001 and early 2002.

For the five-year forecast interval 2002-2006 as a whole, the Bank projects average annual economic growth of 3.4% for Canada and 3.3% for the United States. That would be half a percentage point slower than both countries’ respective growth rates during the past five years.

The fastest growing industries over the next five years will have firms undertaking the following activities, according to BoM: provision of information and communication services; design, production, and installation of advanced technology equipment; provision of specialized manufacturing and professional services, benefiting from the continued trend towards outsourcing; and, the production and/or provision of housing-related items and services. In addition to being involved in these activities, another characteristic of high-growth industries is that they have firms which produce goods or provide services for which there are favourable long-term, structural shifts in demand.

The communications & information services industry is expected to top all sectors in Canada during 2002-2006, with average annual growth close to the double-digit range. Manufacturers of communications and computer equipment, plastics, furniture, and motor vehicle parts, and suppliers of professional services, are also forecast to rank among the growth leaders. However, in the case of manufacturers of communications equipment, business conditions are likely to remain weak until 2003, given still large inventories and the strained financial position of telecoms.

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The slowest-growing sectors over the medium term will include: those facing declining demand (tobacco) or holding an unfavourable competitive position (leather, clothing, printing); mature industries whose growth is primarily determined by the rate of population growth (education, health, government services, personal services); and resource-based industries confronted by limitations on the availability of raw resources and/or stringent environment controls (fishing, forestry).

The main risk to the five-year industry forecasts, according to the Bank, is the possibility of another adverse geopolitical event that further weakens consumer and business confidence and/or leads to a disruption in the supply of energy.

A faster-than-expected rise in the value of Canadian dollar (currencies tend to overshoot in both directions) and poorer performance in commodity markets than projected, also represent risks, although the weights the Bank attributes to them are comparatively small. On the upside is the potential for stronger-than-anticipated trend growth in productivity.

BoM’s forecast and report was prepared by Earl Sweet, Assistant Chief Economist, Robert Hogue, Senior Economist and Kenrick Jordan Senior Economist. The complete report can be viewed online at http://www.bmo.com/economic/regular/sector.html.