Production slow to rebound to previous highs in Canadian manufacturing industries
Ottawa, ON -- It will be the middle of this decade -- at the earliest -- before several major Canadian industries return to pre-recession levels of production, according to the Conference Board of Canada's Canadian Industrial Profile-Summer...
Ottawa, ON — It will be the middle of this decade — at the earliest — before several major Canadian industries return to pre-recession levels of production, according to the Conference Board of Canada’s Canadian Industrial Profile-Summer 2011. Among the industries covered in the Profile, only motor vehicle parts manufacturing and aerospace will achieve production levels by 2015 that exceed their 2007-08 output.
Published by the Board in association with the Business Development Bank of Canada (BDC), the Canadian Industrial Profile service provides a five-year (2011-2015) production, revenue, cost and profitability forecast for six industries each quarter. This summer edition includes outlooks for aerospace products, furniture products, motor vehicle parts manufacturing, paper products manufacturing, printing services and wood products manufacturing.
“Uncertainty is the watchword for all of these industries. The current global economic turbulence increases the general risk to these industry outlooks. As well, industry-specific factors are adding layers of concern,” said Michael Burt, associate director, industrial economic trends at the Board.
“BDC serves clients from all these industry sectors and despite the current economic uncertainty, their financial health is relatively stable,” said Jérôme Nycz, senior vice-president, strategy and corporate development at the BDC. “Moreover, we notice that businesses which place innovation at the heart of their business strategy and diversify their export markets are best positioned to cope with the turbulence of global economy.”
Here’s a summary of the industries covered by the report:
Aerospace products: Canadian aerospace production is expected to reach its low point in 2011, before output begins to rise next year. The industry will exceed its previous 2008 peak in 2015. Global passenger and freight air traffic has recovered from the effects of the recession, boosting demand for new orders in the civil segment of the industry. On the other hand, the defence segment of the industry will be negatively affected by the looming budget cuts in Western Europe and the United States, but the effects will not be large. In the coming years, demand for more fuel-efficient aircraft and the growing importance of emerging markets will generate more business opportunities.
Motor vehicle parts: After a 17% increase in production last year, supply disruptions brought on by the Japanese earthquake and tsunami continue to limit auto production and demand for auto parts in 2011. But auto sales will surge over the next couple of years as market conditions in the U.S. gradually improve. Thus, both industry production and profits will grow from 2012 through 2015. The industry faces mounting competition from countries with lower labour costs, and the strong Canadian dollar will negatively affect its cost-competitiveness.
Wood products manufacturing industry: The outlook for the wood products industry is tied closely to residential construction in North America. Therefore, the struggles in the U.S. housing market and slowdown in the Canadian market will reduce growth in the industry this year. Stronger annual growth is expected beginning in 2012, as North American markets rebound and the industry continues to make inroads into new export markets such as China. Still, industry production is unlikely to surpass its 2005 peak before the end of the forecast period in 2015.
Paper products manufacturing: An increase in new orders, combined with lower inventories, suggests that production of paper products will rise — at least in the short term. As a result, the industry is expected to post its first yearly profit since 2002. Yet, the industry has too much capacity, which limits the potential for price increases. As well, the increase in the popularity of digital communications and media will detract from paper demand. Therefore, any future production growth will have to come from non-traditional markets or products.
Printing services: Printing is another industry negatively affected by the transition of advertising and information from printed to digital formats. Production and profits are expected to remain flat through 2015. Smaller print jobs using lower-cost technologies, such as digital printing, are the only growth areas.
Furniture products manufacturing: Exports have declined, as their share of industry sales has fallen from one-half to one-third of total sales in recent years. The U.S. housing market bust and intense international competition have contributed to the decline. With the U.S. housing sector proving slow to rebound, the growing middle-class in countries such as China, India and Mexico offer new markets for high-end furnishings. The industry can therefore expect modest growth over the next four years, but production will not return to its former peak levels within that timeframe.
The Canadian Industrial Profile Service is part of The Conference Board of Canada’s Industrial Economic Trends research. In all, outlooks for 23 industries are completed each year. The publications are available at www.e-library.ca. BDC clients who wish to receive a copy of the profiles free of charge can contact their BDC account manager. For more information, visit www.bdc.ca.