2005 marks the 'revenge' of the old economy
By CO Staff @canadaone | April 13, 2006
2005 marked a year of prosperity with a 30-year low in unemployment, record equity and housing prices, and rising government and trade surpluses. These findings were part of The year in review: The revenge of the old economy 2005, a study released by Statistics Canada today.
As the report title implies, last year's prosperity was based on "old tech" industries: energy, oil, gas, mining and associated transportation services.
In 2005 Canada's economy was strongly influenced by globalization and the integration of Asia into the world economy. This has caused "rapid and profound" changes in the economy. While resource and construction industries have boomed some manufacturing industries have declined. However, in spite of the strong Canadian dollar manufacturing was buoyed overall by the strength in the resource and construction industries.
There were some worries about the rising dollar, high energy prices and spread of the avian flu in many parts of the world triggering an economic downturn. Yet as the report notes, none of these have impacted the growth in Canada's economy so far.
Overall, 62% of industries boosted output last year, little changed from 64% in 2004 and above its long-term average of 59%. Here are some key highlights from The year in review: The revenge of the old economy 2005.
Typical boom-bust not likely
The report cautions that with the current boom's link to the integration of Asia into the global economy, solid arguments can be made that prices will not follow a typical boom-bust cycle and can be expected to stay "stronger for longer".
Consumers withstand energy bill increases, see import benefit
Consumers were "surprisingly unaffected" by rising energy costs.
In spite of higher costs Canadians made little effort to become more energy efficient. Gasoline consumption last year was essentially unchanged, despite the 13% spike in prices and Canadians continued to buy trucks and sport utility vehicles in increasing numbers. Trucks accounted for 48.2% of vehicle sales last year, up from 47.9% the year before. Alberta led the demand for trucks, accounting for two-thirds of all sales.
A strong dollar and low-cost imports from Asia drove down the cost of goods such as clothing, household appliances and electronics. Since 2003 prices for durable have fallen by 2.6% while semi-durable goods have fallen by 1.4%, which save consumers $3.5 billion on purchases of these items or $294 for every household in Canada.
The low cost of imported goods helped keep consumer price inflation low in spite of the surge in energy prices. This in turn helped keep interest rates near their historic lows.
Growth concentrated in Western provinces
Led by investment and exports growth was concentrated in Alberta and British Columbia, which raised both employment and incomes.
- Retail sales in Alberta and British Columbia accounted for 38% of the overall gain Canada-wide./LI>
- Housing stats in these two provinces outperformed the national average by a wide margin.
- New jobs in construction and business services helped Quebec's unemployment reach a 30-year low of 8.3%
- Ontario saw a 1.3% gain in employment. Increases in the construction and service industries outweighed losses in its industrial base and brought unemployment to less than a point above its record low of 5.8% set in 2000.
- Excluding clothing, textile and leather manufactures, 81% of Ontario manufacturers posted higher shipments in 2005.
Commodity markets see sharp rise
For a third year in a row commodity prices rose sharply, initially led by energy and more recently by mining products.
Energy exports single-handedly lifted the trade surplus to a record high. The strength in this sector drove an upturn in business investment, buoyed government surpluses and was behind the strong regional growth in the West.
With the energy industry changing rapidly, energy producers in 2005 shifted to offshore and non-conventional supplies as conventional supplies dwindled.
This has been most evident in oil, where the oilsands now account for 42% of all domestic oil output. At $9.8 billion, investment in the oilsands jumped 55% last year. However, natural gas is also moving to non-conventional sources. All of the increase in output in this sector since 2004 comes from coal-based methane production.
The changes are significant because the new energy sources required large investments to carry and process oil and gas, implying energy will dominate investment for years. Already, the rapid development of the oilsands has created the need for new pipeline capacity, with investment plans up 83% for 2006.
The outlook for other industries
- Accelerated business investments have helped manufacturing to grow, even with the rising loonie. Shipments of investment-related industries have grown by 17% since 2002, the fastest gains outside of petroleum and metals.
- Forestry and clothing manufacturers were squeezed by higher input costs and the strong dollar.
- Prices for a wide range of metals hit record highs in 2005.
- There was also renewed interest in non-metallic minerals such as uranium and potash as well as the continued development of diamond fields in Canada's north.
- Mining jobs rebounded 16% last year, while investment in mining jumped 20%. Non-metallic minerals led the increase, especially potash and diamonds.
- The increased demand for commodity exports led to a rebound in transportation, with rail and water being particularly strong.
- Imports from China saw shipping increase on the West Coast.
- Air transport completed its recovery from the post-9/11 downturn in international travel.
- Operating profits in the oil and gas, mining and transportation industries soared by $16.2 billion last year, accounting for 80% of all profit growth.
- Globalization has bolstered corporate profits, with rising export prices adding $12 billion or over half of profit growth last year to corporate coffers.
- An 11.8% drop in prices for machinery and equipment since 2002, largely due to a stronger dollar, has saved Canadian firms over $10 billion.
The year in review: The revenge of the old economy 2005 is available for free from Statistics Canada www.statscanada.ca
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