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Globe and Mail: Few bumps in la belle province's recession ride


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Un très bon article du G&M ce matin sur la "résilience" de l'économie québécoise:

 

http://www.theglobeandmail.com/report-on-business/few-bumps-in-la-belle-provinces-recession-ride/article1240146/

 

Few bumps in la belle province's recession ride

 

At Sandoz Canada Inc. in Boucherville, Que., sales are rising and the work force is growing.

 

The generic pharmaceutical producer's growth is more subdued than usual, to be sure. But this isn't the picture of a company struggling through a recession.

 

And so goes Quebec, where the global slump has caused discomfort but not intense pain.

 

The province's economy is contracting, but at nowhere near the pace of devastation as in other parts of Canada.

 

This milder recession is seen in the job market, where employment has fallen just 0.7 per cent in the past year. And in the real estate market, where prices are stable. And at Sandoz, where revenue has climbed more than 10 per cent in the past year.

 

“We've seen, over all, still some growth. And we've done some limited hiring,” said Pierre Fréchette, chief executive officer of the company, which opened a new factory in Boucherville last year.

 

“We've been pretty sheltered from the situation outside of Canada, and outside Quebec.”

 

For the country's second most populous province, it could have been a lot worse, even though the global crisis has struck hard at manufacturing and exports – two areas core to Quebec's economy.

 

Thanks to export diversification, a real estate market that didn't overheat and sheer luck, the province that makes up 20 per cent of Canada's economic heft has fared much better than in past recessions.

 

“The main industries of Quebec are not in restructuring mode. This is just a cyclical downturn,” said Sébastien Lavoie, economist at Laurentian Bank of Canada in Montreal.

 

The most obvious example of the mild nature of the recession in Quebec is in the labour market.

 

The 0.7-per-cent drop in employment in the past year compares with a 1.8-per-cent contraction nationally, and much larger declines in the other major provinces.

 

Compared with previous recessions, Quebec workers have had it easy this time. The 1990s recession cut the provincial work force by 2.9 per cent, while the 1980s recession destroyed 7.4 per cent of jobs.

 

Quebec's unemployment rate, now 8.8 per cent, is slightly above the national average (8.6 per cent), which is usual. But it is significantly below Ontario's 9.6 per cent. And most of Ontario's job losses have been full-time positions, while Quebec's are mainly part-time.

 

Overall growth in Quebec contracted sharply in the first quarter, but, again, not as sharply as the country as a whole, nor as Ontario in particular. Indeed, Quebec's growth has outpaced Ontario since 2006 – a trend that is expected to persist into next year, and something that has not happened in decades.

 

While Ontario and Quebec are often lumped together and characterized, fairly, as Canada's manufacturing heartland, the structure of Quebec's manufacturing sector has changed dramatically since the previous recession, analysts say.

 

“Quebec has gone through a transformation,” said John Baldwin, director of the economic analysis division at Statistics Canada and one of Canada's top authorities on productivity.

 

Free trade with the United States encouraged all of North America to shift from the manufacturing of non-durable goods to durable goods, to take advantage of economies of scale and growing global markets, according to a new paper by Mr. Baldwin.

 

But Ontario's manufacturing and exports had always been concentrated in durable manufacturing – steel, cars, machinery and equipment.

 

Quebec, on the other hand, was the centre of non-durable manufacturing for Canada, with its textiles and shoes.

 

During the 1990s and especially in the past decade, Mr. Baldwin said, Quebec switched over, but expanded into areas where Ontario was not as dominant – aerospace and pharmaceuticals.

 

Quebec had a painful adjustment, scaling back its textile sector and shutting down large parts of its pulp and paper industry in the past decade.

 

But that restructuring is largely over, economists say.

 

In this recession, like recessions of the past, manufacturing has suffered more than other sectors. But since Quebec does not have Ontario's dependence on U.S. consumption of cars, and is not as dependent on energy exports as the West, it has not been as vulnerable.

 

About a third of Quebec's gross domestic product comes from exports, and 75 per cent of those exports go to the United States.

 

But the U.S. market is far more important for Ontario because 42 per cent of the province's GDP comes from exports, and 84 per cent of its exports are sold to Americans.

 

Sales of cars, mainly from Ontario, are down about 40 per cent so far this year.

 

Quebec's aerospace sector has faltered too, recently, but not to the same extent.

 

“We are not in the same situation as the auto sector,” said Joëlle Noreau, senior economist at Desjardins Group.

 

But Quebec's recession is mild not simply because it avoided the crisis in the auto sector.

 

It's also because export volumes have surged in other areas, especially in the pharmaceutical industry, rising 80 per cent so far this year from 2008.

 

Most of that growth comes from generic drug companies taking advantage of expiring patents – a cycle that is not at all related to the global crisis, said Mr. Fréchette at Sandoz.

 

“Obviously, we see pressure on our margins,” he said in an interview.

 

“But our business is driven by very specific events. In general, the prospects are good.”

 

While economists say they are tempted to point to clever business strategies and forward-thinking industrial policies as explanations for Quebec's mild recession, they are quick to say plain luck is a major factor, too.

 

“We were blessed,” Ms. Noreau says.

 

As Quebec's roads and bridges fell into disrepair a few years ago, the provincial government responded by investing heavily in infrastructure. Well before the recession started, the government earmarked $42-billion, or 14 per cent of GDP, for a five-year building plan.

 

While other provinces are preparing to spend heavily, too, in a bid to fight off recession, Quebec's plan has already kicked into high gear, she said.

 

Luck is also behind the stability in the housing market, said Marc Pinsonneault, senior economist at National Bank Financial.

 

The prerecession runup in house prices was not nearly as notable in Quebec as in the West and Ontario, he said, so there was no bubble that needed bursting.

 

Stable housing prices have meant that the net worth of many Quebeckers has not plunged as much as elsewhere, a trend that has added strength to the domestic side of the province's economy, Mr. Pinsonneault added.

 

There are, of course, real fears that Quebec's luck could run out.

 

The aerospace sector has stumbled in the past couple of months, and orders are drying up.

 

Aerospace accounts for about a quarter of the province's exports, but sales typically respond to turns in the economy with an 18-month lag, said Jean-Michel Laurin, economist at the Canadian Manufacturers & Exporters.

 

Already, Bell Helicopter, a division of U.S.-based Textron Inc., announced 150 layoffs in July at its Montreal-area plant, linked to sagging demand for its products.

 

In the refinery sector, Mr. Laurin adds, Royal Dutch Shell has warned that it could shut down its Montreal refinery that employs 550 people.

 

The pharmaceutical industry will no doubt come under pressure as indebted governments around the world are pressured to cut health care costs in the coming years, to get their deficits under control.

 

And the strong Canadian dollar is adding yet another burden to exporters' lists of problems, Mr. Laurin said.

 

“Regardless of where you go in Quebec or Ontario, we're all very dependent on the U.S.”

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:relieved: Enfin un bon article de la part du Globe qui donne justice au Québec. On constate en même temps que trop de concentration dans une industrie rend vulnérable. La diversification est une bonne formule et il faudra continuer dans la même direction. Une bonne leçon pour nos compatriotes du ROC qui aiment bien manger du québécois à l'occasion pour oublier leur propres faiblesses.
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:relieved: Enfin un bon article de la part du Globe qui donne justice au Québec. On constate en même temps que trop de concentration dans une industrie rend vulnérable. La diversification est une bonne formule et il faudra continuer dans la même direction. Une bonne leçon pour nos compatriotes du ROC qui aiment bien manger du québécois à l'occasion pour oublier leur propres faiblesses.

 

Non seulement une diversification est une bonne formule mais une certaine indépendance face aux USA peut aussi sembler effectif. Je comprends qu'il peut etre rentable de vendre aux américains mais trop se concentrer sur eux pourraient provoquer ce que l'Ontario vit en ce moment.

 

L'indépendance et la diversité, voilà deux clés pour le succès.

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