Profits expected to be down this year in most of six industries, says BDC
By CO Staff @canadaone | November 9, 2009
Canadians should expect to see profits down by more than 20 per cent across most of six industries by year end, says a new report from the Business Development Bank of Canada (BDC).
BDC along with the Conference Board of Canada have profiled six industries over the past five years. The industries being tracked are accommodation, food and beverage manufacturing, food services, retail trade, transportation & warehousing, and wholesale trade.
"All industries are grappling with the effects of reduced demand and downward pressure on prices as a result of the recession. The end result is reduced sales and profitability in nearly every industry covered in these reports, with the transportation and wholesale trade industries being the most affected," said Michael Burt, Associate Director, Industrial Economic Trends. "On the upside, the recession has lowered input prices and limited wage growth, reducing cost pressures."
Here is an overview of their analysis of the performance of each industry sector.
Transportation and Warehousing
Canada's transportation and warehousing industry has been battered by lower travel demand, along with diminishing global trade and manufacturing production. Most of the different segments of the industry - including air, rail, water, and road transportation - suffered badly in 2009. Profit levels fell 29 per cent from $7.3 billion in 2008 to $5.2 billion in 2009. Looking forward, the industry is expected to experience a robust recovery once the recession is past.
This industry is closely linked to the performance of the overall economy. Wholesalers dependent on the auto sector and construction industry have suffered badly. However, sectors such as food, apparel and pharmaceuticals are less sensitive to business cycles and actually expanded during the recession. Profits will fall for the second consecutive year in 2009, from $14.5 billion to $11.2 billion. But as the recession fades, profit growth will resume in 2010.
Weak consumer demand, combined with price cuts, has slashed industry profits by 32 per cent from $12.6 billion last year to $8.6 billion in 2009. However, in contrast to many other industries, the strong dollar benefits retailers by lowering the cost of imports. As employment and income recover throughout the economy, the retail outlook is expected to improve.
Lower-cost establishments have held up well during the downturn, leaving full service restaurants to bear the brunt of the recession. After making $1.2 billion in 2008, the industry is expected to see profit levels of $826 million in 2009, a 32 per cent reduction.
Canadians are staying closer to home, but domestic demand has not been enough to offset the sharp decline in U.S. and foreign travelers. The strong dollar has also made Canada a more expensive destination. After a 25 per cent decline in profits last year, industry profits are expected to fall a further 8 per cent in 2009, to just below $500 million. The accommodation industry could face a shaky recovery, as the experience with SARS in 2003 shows that an H1N1 outbreak would put additional pressure on the industry.
Food and Beverage Manufacturing
In contrast to many other industries, food and beverage manufacturing has been largely recession-proof. Domestic food demand remained steady and exports to new markets grew in spite of the strong dollar, while lower commodity prices have pushed costs down. The industry made $3.3 billion in 2008 and profits are expected to rise modestly to $3.4 billion in 2009.
"Periods of economic slowdown come with their share of challenges for entrepreneurs, but they also provide business owners an opportunity to take a step back, think of how they can improve the way they operate and take their business to the next level," said Jérôme Nycz, Vice President, Strategy & Enterprise Risk Management at BDC. "These industry profiles not only allow entrepreneurs to become aware of the specific challenges in their own industry, but also to identify where opportunities reside."
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