MRO Magazine

U.S. economy poised for recovery as Canada stumbles

Mississauga, ON -- The Canadian economy will stumble moving forward, with the GDP rising only 2% in 2003, well behi...


Industry

September 23, 2003
By MRO Magazine


Industries

Mississauga, ON — The Canadian economy will stumble moving forward, with the GDP rising only 2% in 2003, well behind the recovering United States’ projected rise of 4%, forecasters predicted at Electro-Federation Canada (EFC) annual Economic Forecast Day, held Sept. 18, 2003, in Mississauga, Ont.

The Canadian dollar was predicted to trade at the 73-cent to 76-cent level in 2004. The impact of Chinese manufacturing and the struggling automotive industry were other key topics discussed throughout the day.

Maureen Farrow, president, Economap Inc., Toronto, and EFC’s long-time economic consultant, described the current state of the global economy as “passing through a modest expansion” that relies heavily upon the performance of the United States.

Farrow described the recovery as “jobless” as companies move a significant portion of their business to Asia and three million service sector jobs move offshore.

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Farrow saw China as the “little engine that could,” which will, within this decade, become a major driver of the global economy. Canada will stumble moving forward, forecasts Farrow, underperforming the United States with only a 2% rise in GDP in 2003, with the country’s productivity and rising dollar at the heart of the problem.

Farrow recommends that Iraq and oil prices be watched, as oil is an “incredible driver for business cycles” and the Middle East had 685.6 billion barrels of proven oil reserves at the end of 2001.

The economic and investment outlook

Craig Alexander, assistant vice president and senior economist at TD Bank Financial Group, provided an analysis on the U.S. and Canadian economies and the outlook for investments.

Recovery was the buzz word throughout Craig’s analysis of the U.S. economy, as strong economic growth is expected moving forward, with the U.S. GDP poised for an average annual growth of 4.2% in 2004. However, the recovery will remain jobless, the U.S. dollar will continue to weaken by another 5% and the twin deficits will get worse throughout the next four to six quarters.

The Canadian economy, battered by shocks from SARS, the Ontario blackout, B.C. forest fires, mad-cow disease and the rising Canadian dollar, will see a dismal 2003, with average annual GDP growth of only 1.8%. However, Alexander felt Canada will only lag slightly behind the U.S. economy going forward, and will gradually pick up speed.

Forecasts point toward a further upside to the Canadian dollar, with it reaching the 76-cent level in 2004.

Canadian automotive industry review

Dennis DesRosiers, president, DesRosiers Automotive Consultants, concluded the informative session by presenting his view on the two overwhelming issues facing the North American auto sector today — “the market is on the downside of its cycle and the Big Three are losing market share.”

Although the long term market does not appear to be in any trouble, with no evidence of less ownership or usage, the short-term cyclical downturn is real. As the market continues to be inundated with supply, incentives for consumer purchase are not as effective.

There is also strong evidence that the U.S. market is fully absorbed, he added, with Americans owning 1.009 vehicles per driving age population. However, there is no “crisis” in the market nor on the production side of the industry in Canada. The so-called crisis is actually just a market share problem, as the Big Three (Ford, Chrysler, GM) fight against the import nameplates for customers.

In 2002, the Big Three had only 37.8% of the consumer passenger car market, and are slowly losing their older, most reliable customers to imports. Imports are holding their resale value better, have a lower number of problems, lower cost of repairs and fuel, and a high repeat purchase percentage.

As the Big Three continue to lose market share, plants will be closed in North America. New North American Manufacturers (NNAM), however, will be opening plants as they grow from having 25% of the automotive production market in North America to having 30%-35%.

U.S. electro-industry economic outlook

Don Leavens, chief economist of the U.S.-based National Electrical Manufacturers Association (NEMA), provided an in-depth analysis of key indicators in the U.S. electro-technical industries.

According to Leavens, the manufacturing sector shows some signs of recovering, capacity utilization will rebound throughout the forecast horizon and the U.S. economy is expected to strengthen as we begin the second half of 2003.

Leavens was also quick to point out that the American people are not over extended, and that low mortgage rates are sustaining housing demand — which was up 12.4% in July compared to the same period a year ago. He also forecasted that the long-term housing outlook was robust, stating that “household growth could surpass 12 million between 2000 and 2010, with more than a third of this growth expected to come from immigration.”

Leavens predicted that although the U.S. economy is poised for recovery, the rebound will fall short of record levels reached during previous economic expansion.

Electro-Federation Canada is a national, not-for-profit industry association representing over 250 member companies in the electrical, electronics and telecommunications industries in Canada. EFC member companies manufacture and distribute a diverse array of products including household appliances, lighting, consumer electronics, diagnostic imaging, communications and electronic equipment, cabling, industrial equipment and many others.

EFC oversees the following sector-specific industry organizations:
– CAMA — the Canadian Appliance Manufacturers Association, comprising manufacturers and marketers of major and portable household appliances;
– CEASA — the Canadian Electronic & Appliance Service Association, comprising manufacturers, importers, distributors and large retailers who have a national service responsibility for the consumer electronics and major appliance products they manufacture, import or sell in Canada;
– CEMC — the Consumer Electronics Marketers of Canada, companies that produce and/or distribute consumer electronic products in Canada;
– CEMRA — the Canadian Electrical Manufacturers Representatives Association, companies that service Canadian electrical distributors by representing manufacturers’ product lines;
– EEMAC — the Electrical Equipment Manufacturers Advisory Council, members who manufacture distribution equipment, industrial controls, lighting, motors and generators, transformers, wire and cable and wiring supplies;
– MIISC — the Medical Imaging and Information Systems Council, comprising manufacturers of diagnostic imaging and therapy products used primarily within the medical system; and
– S&D — the Supply and Distribution Council, whose member companies consist of Canada’s supply and distribution network for electrical products for manufacturers and manufacturers’ reps to distribute their products.

For more information on EFC, contact: Corinne FitzSimmons, Electro-Federation Canada, 905-602-8877 ext. 219, e-mail cfitzsimmons@electrofed.com, or visit www.electrofed.com.