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More wings should give a boost to Quebec’s economy in 2011 and 2012

07/15/2011 by John Clinkard

Following a modest gain in the final quarter of 2010, it appears that the Quebec economy picked up steam at the beginning of this year. The growth in gross domestic output increased from 1.9% quarter over quarter at annual rates in Q4/2010 to 3.7% in the first quarter of 2011.

According to Institute de la Statistique du Quebec, most of the gain in output in the first quarter occurred in January due to a very sharp rise in output of manufacturing industries together with gains in utilities and construction.

Entering the second half of the year, while there is evidence that growth has cooled somewhat, several indicators suggest that the fundamentals of the economy are still quite strong.

First, over the past three months, full time employment has increased by 31,200.

Second, in May, the province’s unemployment rate fell to its lowest level since October of 2008.

Third, according to the Conference Board in Canada, hiring plans in the province increased sharply in April.

Over the very near term, the effect (both direct and indirect) of supply chain interruptions on auto production caused by the earthquake in Japan will probably temporarily depress growth of manufacturing and also transportation services in the province.

However, a rebound in US demand for motor vehicles together with a surge in international orders for aircraft reported by Bombardier Inc. should cause manufacturing to pickup strength in the second half of the year and into 2012.

In addition over the next several quarters non-residential investment in mining and exploration should be driven by sustained global demand for commodities including iron ore, aluminum and gold.

While the prospects for business investment and exports are relatively strong, the outlook for consumer spending, housing and government spending is less so due to the impact of recent hikes in provincial sales taxes, changes to mortgage eligibility and efforts to reduce the size of the province’s fiscal deficit.

Largely due to the somewhat guarded outlook for these three key components of domestic demand, growth for the year (2011) as a whole will likely be in the range of 2.3% to 2.8%, somewhat slower than it was in 2010 (2.8%).

However in 2012, the effects of sustained job growth and a further strengthening of external demand should cause growth in the province’s economy to expand by a slightly faster 2.8%.

Gross Domestic Product - Quebec vs. Canada
Gross Domestic Product - Quebec vs. Canada
Source of actuals: Statistics Canada/Forecast - CanaData/Chart: Reed Construction Data, CanaData.

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