QUEBEC CITY - May 10, 2005 - Quebec exporters generally face bright prospects in 2005, but declining sales of aircraft and increased competition in the clothing industry will combine to limit export growth to 2 per cent in 2005, according to a provincial export outlook from Export Development Canada (EDC). "For most exporters in Quebec, 2005 will feel like another good year," said EDC Senior Vice-President and Chief Economist Stephen Poloz. "Growth will not match the searing pace set in 2004, but there is still lots of life in a number of industries." Industrial goods exports will maintain a good clip, expanding by 7 per cent this year, on top of the 15.1 per cent surge recorded in 2004. Robust metal prices and rising production capacity at Alcan's Bécancour and Alouette aluminum smelters will keep metal sales well stoked. Demand for chemicals and plastics will also remain solid, thanks to generally healthy global fundamentals. But as the world economy slows down and commodity prices pull back in 2006, a 1 per cent drop in the exports of industrial goods is expected. "A strong outlook for U.S. capital investment through 2006 will keep exports of machinery and equipment (M&E) going strong," said Mr. Poloz. "Rising corporate profitability, relatively low interest rates and capacity constraints in the U.S. market will enable Quebec's M&E exports to rise by 6 per cent during 2005." The increase will remain broad-based, but agricultural machinery and IT equipment will be this year's growth leaders. Looking forward to 2006, a solid 4 per cent increase in broader M&E exports is still expected, which is considerable given the high growth rates already recorded over the previous two years. Overall growth will be restrained by weakness in certain key sectors. The Quebec aerospace industry's heavy reliance on exports of 50 to 70-seat regional jets (RJs) will continue to dampen the outlook for sales of broader transportation equipment. An increasingly mature RJ market, persisting weakness in demand in the global airline industry and the sustained pressure of a strong Canadian dollar are combining to drag down Quebec's transportation equipment sales by 15 per cent this year. This challenging environment will linger through 2006, causing exports to drop another 1 per cent. "But all is not doom and gloom in the aerospace sector," said Mr. Poloz. "Aside from the RJ market, transportation exports are looking up. There is a revival in demand for railway products, and other aerospace segments, such as aircraft parts, helicopters and avionics, have registered strong performances." Meanwhile, the problems of Quebec's clothing and garment industry, a major sub-sector of the provincial consumer goods industry, will continue to negatively affect exports. The phasing out of the Multi-Fibre Agreement, increasing competition from low-wage countries and a relatively strong Canadian dollar are all factors dragging down export performance in this sector. Adding to the negative outlook are higher interest rates and rising oil prices, which will reduce U.S. demand for other consumer goods. "Sales prospects are brighter in Europe and the UK, where local currencies are expected to maintain ground vis-à-vis the Canadian dollar," noted Mr. Poloz, "but overall, we forecast exports of made-in-Quebec consumer goods to decline over the next two years." Quebec's forestry exports will shed momentum this year, growing only 3 per cent after rising 10.4 per cent in 2004. "This year's increase, however, will be solely price-driven, because poor industry fundamentals are actually causing capacity shrinkage," noted Mr. Poloz, "and there's a culmination of factors underlying this trend." "Newsprint exports, Quebec's main forestry product, are suffering from a large number of shutdowns or conversion to higher grade papers, as high electricity prices and a strong Canadian dollar continue to exert pressure on the sector," explained Mr. Poloz. "Pulp producers are being hit by some of the highest fibre wood prices in the East and the timber industry is running into freight capacity limitations, which is curtailing its access to the all-important U.S. market." Further, a research panel commissioned by the provincial government has recommended a 20 per cent reduction in allowable timber cuts to maintain sustainability, and the implementation of these restrictions in 2005 would drive down the forecast. Looking forward to 2006, fundamentals will remain basically unchanged, but deterioration in the pricing environment and a drop in US homebuilding will cause exports to flatten. Nationally, the economy is expected to grow by 2.4 and 2.9 per cent in 2005 and 2006, based on good domestic economic fundamentals. In turn, Canada's export volumes should grow by 3 per cent in both 2005 and 2006. A copy of EDC's Global Export Forecast is available on EDC's web site: http://www.edc.ca/docs/ereports/gef/EFindex_e.htm EDC is a Crown corporation that provides trade finance and risk management services to Canadian exporters and investors in up to 200 markets worldwide. -30- Media Contact : Glen Nichols EDC-Public Affairs Telephone: (613) 598-2876 email: glnichols@edc.ca
