Industrial Rebound

The recession is now fully behind us and as the Canadian economy continues its recovery, it is the goods producing sectors that will lead growth in 2011-2012, says TD Economic’s Industrial Outlook.

TD economists Derek Burleton (vp and deputy chief economist) and Leslie Preston (economic analyst) note in a commentary that “the Canadian economy has regained the ground lost during the recession and the industries driving growth are shifting from those levered to domestic activity, to export-oriented manufacturing and resources.”

Last year the global economic recovery helped Canada grow 3.2 per cent (as measured by GDP at basic prices). A similarly healthy rate of expansion (3.0 per cent) is anticipated in 2011, before moderating to 2.5 per cent in 2012 as the recovery matures and interest rates rise, notes TD Economics.

There are many risks that could impact economic growth such as the financial difficulties facing several European countries, continued political uncertainty in the Middle East and North Africa’s effect on oil prices.

The key threats though for Canada’s industrial outlook are “a sustained spike in oil process and/or the probable overshooting in the Canadian dollar that could occur…while higher crude prices may be a boon for Canada’s oil patch, they could take the wind out of the sails of global growth if elevated levels are sustained over a longer period, hurting Canada’s export-oriented resource and manufacturing industries,” note Burleton and Preston.

TD Economics predicts stronger US demand will lift manufacturing.

“A combination of the inventory drawdown see in Q4 and a projected acceleration in US growth, should lead export-oriented manufacturers to ramp up production further. The auto sector should lead the way, helped by significant pent-up demand south of the border. Vehicle sales have already gained significant momentum in recent months and scheduled production has also been quite strong.”

Burleton and Preston say they see auto production advancing “at a close to 10 per cent pace over the next two years, which should put the sector’s growth near to the top of the growth tally.”

For more details on the Industrial Outlook, visit TD Economics.