The Economist magazine has published an article on the “puzzling weakness” of Canadian manufacturing, noting the sector’s years-long slide, which the magazine says has turned southern Ontario, Canada’s manufacturing heartland, into a “new rust belt.”
Observers had been expecting Canadian manufacturing to put in a strong performance this year, thanks to a steeply lower loonie that makes exports more competitive.
But so far, the rebound hasn’t happened. Output in Canadian manufacturing was 2.3 per cent lower this May than it was a year earlier, the latest month for which data is available, and job growth has been at half the pace of the broader economy, after years of declining job numbers.
The Economist article adds an interesting talking point to the debate: In 2000, manufacturing was 18 per cent of Canada’s economy, the same level as Germany. By 2013, it had fallen to 10 per cent, the same level as the U.S. and U.K. It attributes that to the long period during which the Canadian dollar was high thanks to high oil prices, harming the competitiveness of non-oil exporters.
It notes that the number of people employed in manufacturing in Canada has fallen by 500,000, to 1.7 million people, even as the economy and the country grew over the past 15 years. Some 20,000 factories have shut their doors.
The magazine pinpoints a problem that some others have noted as well: Even though the loonie has been falling against the U.S. dollar, so have the currencies of many other countries that compete with Canada. And that makes Canada no better off relative to those countries.
Citibank currency strategy head Steven Englander recently argued that “Canada’s problem is Mexico, not oil.” He noted that the Mexican peso and the Canadian dollar have been trading in the same range for years, meaning Canada’s oil and auto parts exports aren’t gaining any advantage on the U.S.’s southern neighbour.
For the rest of this article, click here: http://www.huffingtonpost.ca/2015/08/31/ontario-rust-belt-the-economist_n_8065648.html