Canada’s export-dependent manufacturing sector continues to face challenges and is counting on emerging markets and recovery in the United States to sustain growth, according to a new study released Tuesday.
The study, published by the Conference Board of Canada in association with the Business Development Bank of Canada, says the ongoing financial crisis in Europe is the biggest cloud on the horizon for Canadian manufacturers.
The high value of Canada’s dollar also continues to limit prices and profitability, the study says.
The profile provides a five-year forecast for production, employment, revenue, cost and profitability for six industries each quarter.
The Summer 2012 profile includes outlooks for aerospace products, furniture, motor vehicle parts, paper products, printing services and wood products.
“The continuing financial crisis in Europe is the primary risk to some of Canada’s high-profile manufacturing industries,” the Conference Board’s Michael Burt said in noting that turmoil in the eurozone could further undermine business and consumer confidence around the globe.
While most of the industries covered in the current outlook have been experiencing healthy production growth, “the strong Canadian dollar will limit the prices that export-oriented industries receive for their goods,” added Burt, the board’s director, industrial economic trends.
The loonie has been trading near parity with the U.S. dollar since late July. It was 0.37 up of a cent Tuesday morning to a fresh 3 1/2-month high of 101.54. The last time the dollar was bellow 99 cents US was on July 26.
Pierre Cleroux, vice-president and chief economist at the BDC, said that despite the continued improvement in revenue, profitability and job creation across all sectors, “we’re not out of the woods yet.”
“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,” Cleroux said
On an industry basis, the study found:
— Auto parts: The recovery of the auto industry is in full swing, thanks to surging vehicle sales in North America. Although Canada’s motor vehicle parts production will grow by almost 15 per cent in 2012, it is still well below pre-recession highs and the strong Canadian dollar will limit price growth. As a result, industry profits are forecast to increase modestly from $1.2 billion in 2012 to slightly more than $1.5 billion in 2016.
— Aerospace: After three years of declining or stagnant production, Canada’s aerospace industry output will grow by almost seven per cent in 2012. Strong demand from emerging countries, along with expectations for a sustained recovery in the United States is expected to help 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: A long-awaited rebound in the key U.S. housing market is expected to support the outlook for both the wood and furniture industries. 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.
— 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.
The industries have shed about 20,000 jobs each since 2008. Yet, despite declining production and limited price growth, both industries are marginally profitable. Printing services companies are expected to post profits of $254 million this year, while the paper products industry is forecast to make $229 million in 2012.
As well, the outlook for paper products manufacturers is expected to show modest growth beginning in 2013 amid growing demand in emerging markets. The industry is also exploring new uses for forest resources, such as producing biochemicals and bio-energy from wood fibre.
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 by the Ottawa-based think-tank.
The BDC, with almost 2,000 employees and more than 100 business centres across the country, offers financing, subordinate financing, venture capital and consulting services to 29,000 small- and medium-sized companies.