Quebec’s economy has turned a corner. After struggling to maintain its ground, there are clear signals the province is on a path it hasn’t journeyed in quite some time: prosperity.
Employment gains are among the clear indicators that the province is moving in the right economic direction. “There is an employment revival,” states a report written by Robert Hogue, senior economist with Royal Bank of Canada (RBC) in Toronto. Quebec’s job market was sluggish at the beginning of 2016, the report notes, but the latter part of the year made up for this with gains in both the public and private sectors.
In October, for example, Quebec’s employment increased by 69,800 jobs, a gain of 1.7% over the previous year and more than double the growth in Canada as a whole (which reached 0.8% over the same period). According to the Institut de la statistique Quebec, employment increased in four of Québec’s 17 administrative regions in October alone.
The most recent provincial report from Bank of Montreal’s (BMO) capital markets division stated that employment was up a “decent” 0.8% by the end of August vs the previous year. According to the report, written by BMO vice president and senior economist Robert Kavcic: “The jobless rate has fallen to 7%, the lowest level in just over a decade and, notably, below that in Alberta for the first time in 30 years.”
The provincial government is also relaxing the public purse strings. “After years of restraint, we are seeing the government starting to loosen up,” says Hogue. He notes that the government has achieved its goal of a balanced budget, and actually had a record $2.2- billion surplus in fiscal 2015-16: “The extent of this is unexpected.”
There are early indications the provincial government is willing to spend more than in previous years. Minister of Finance Carlos Leitão announced $1.8 billion in new spending over the next three years, including $300 million for health care and social services and $100 million to boost the economy.
By the end of the last fiscal year, Quebec’s gross debt had dropped by $610 million, which resulted in a decrease in the debt burden to 53.8% of real gross domestic product (GDP) – a decline of 1.3% compared with the fiscal year ended March 2015. “For the first time since the end of the 1950s, Québec’s gross debt is in decline. It is an important turning point,” Leitão’s report states.
GDP growth in Quebec has been slow for a number of years, ranging between 1% and 1.5%, the RBC report notes, adding: “[That] is not surprising, but it is disappointing. It has had a slowing effect on the industrial sector. Now that government has achieved its mission, it may have a psychological effect and it may have contributed to increased confidence.”
That confidence is evident in spending on industrial and commercial infrastructure, which increased in both the second and third quarters of 2016, the first back-to-back increases since 2013, according to the RBC report: “[This] bodes well for further recovery to take hold in 2017.”
The GDP growth forecast for 2017 is 1.6%, up slightly from an anticipated 1.5% last year. “Quebec has had incremental growth for several years, but below the national average. [GDP growth] might be slightly above the national average for 2016.”
A report from Toronto-Dominion Bank (TD) predicts that GDP growth in the province will be propelled by manufacturing and export-related industries, as demand from the U.S. remains strong. As a result, there is expected to be an increase in industrial construction investment. That mirrors increased construction activity in the residential market. Good news from the federal government regarding infrastructure spending is also anticipated to strengthen the Quebec economy.
The BMO report points out that, although export momentum is picking up, with net export volumes improving in the last four months, business investment remains sluggish, with non-residential and machinery and equipment investment weakening steadily over the past two years: “While this could gradually improve if confidence responds to a balanced budget and a signalled period of tax reduction, it remains a key drag on the provincial economy.”
Another issue for Quebec is its changing demographics; the aging population has significant implications for the province’s economy. The RBC report states: “This is well known and well documented, but it is now taking place at an accelerated rate. It affects growth potential. The pool of potential labour is shrinking.”
The provincial government is responding to the potential labour crisis by investing in skills and labour training. “They are responding,” the RBC report adds. “How effective that will be remains unknown.”
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