OTTAWA—Canada’s export-dependent manufacturing industries are counting on the U.S. economy and demand from emerging markets to sustain production increases and bolster profitability, according to a new report.
Published by The Conference Board of Canada in association with the Business Development Bank of Canada (BDC), the Canadian Industrial Profile-Summer 2012 provides a five-year forecast for production, employment, revenue, cost and profitability for six industries each quarter.
The recently released edition projects surging sales in auto parts production, limited profit growth in aerospace, a surprisingly profitable paper and printing industry and a wood and furniture industry that remains highly dependent on the U.S. housing market.
“The continuing financial crisis in Europe is the primary risk to some of Canada’s high-profile manufacturing industries,” Conference Board director of industrial economic trends Michael Burt said in a statement. “Turmoil in the euro zone could further undermine business and consumer confidence in the United States and emerging economies.”
According to Burt, most of the industries covered in the summer outlook are experiencing healthy production growth, but the strong Canadian dollar will limit pricing on export-oriented industries.
“Despite the continued improvement in revenue, profitability and job creation across all sectors, we’re not out of the woods yet,” BDC vice-president and chief economist Pierre Cléroux said. “The manufacturing sector is still far from its pre-recession highs and unless Canadian businesses make significant investments in productivity, they will have difficulty competing in the new economic environment.”
Surging sales driving auto parts production
The recovery of the auto industry is in full swing, thanks to surging vehicle sales in North America.
Canada’s motor vehicle parts production will grow by almost 15 per cent in 2012, according to the report, but is still well below pre-recession highs.
The strong Canadian dollar, however, will limit price growth.
As a result, the report forecasts industry profits will increase modestly from $1.2-billion in 2012 to slightly more than $1.5-billion in 2016.
Aerospace industry boosts production, but profit growth limited
After three years of declining or stagnant production, aerospace industry output will grow by almost seven per cent in 2012, according to report findings.
Strong demand for aircraft in emerging countries, along with expectations for a sustained recovery in the U.S., will help to boost production by more than three per cent annually over the next four years.
However, weak price growth will limit the industry’s profitability to about $500-million annually in the next couple of years.
Wood and furniture industries count on U.S. housing market
A long-awaited rebound in the key U.S. housing market is expected to support the outlook for both the wood and furniture industries, the report says.
Home delinquency rates and inventories are falling, pent-up demand for new construction is driving increased building and prices have stabilized in many markets.
Buoyed by export demand, overall production in 2012 will increase by 3.3 per cent in the furniture products industry and by almost eight per cent in the wood products industry.
Prices, however, will increase only modestly over the next four years.
After losing $114-million in 2011, the wood products industry is expected to return to the black in 2012, posting a profit of $208-million.
Wood industry profits are expected to more than triple next year to $673-million.
Meanwhile, profits in the furniture products industry are forecast to stabilize at about $400-million annually through 2016.
Internet proliferation shreds outlook for paper products and printing services
Online media, e-readers and tablet computers are displacing demand for paper and printing services.
As a result, production levels in both the paper products and printing services industries will continue their recent declining trend, according to the report.
The industries have shed about 20,000 jobs each since 2008.
Yet, despite declining production and limited price growth, the report says both industries are marginally profitable.
Printing services firms are expected to post profits of $254-million this year, while the paper products industry is forecast to make $229-million this year.
The outlook for paper products manufacturers is expected to show modest growth beginning in 2013.
Growing demand in emerging markets will help boost production and profitability.
As well, the industry is exploring new uses for forest resources (with governments as a partner through the Bio-Pathways Partnership Network), such as producing biochemicals and bio-energy from wood fibre.
The global markets for products such as green chemicals and alcohols are potentially worth billions of dollars.
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.