TORONTO - After several years of strong growth, Canada's plastics processing sector is stumbling.
The industry began to sag in the second half of 2001 when North America's economy grew sluggish. The decline was accelerated by the disastrous impact of terrorist attacks Sept. 11.
Plastics and other manufacturing sectors in Canada have a poor prognosis for most of 2002, according to some economists. The country's manufacturing sectors rely heavily on consumer spending and business investment in the United States. Despite a small rebound in consumer spending following Sept. 11, U.S. spending in 2002 does not bode well.
The impact on Canada's economy will be sizable since about 63 percent of Canada's manufactured goods are exported to the United States, according to Jayson Myers, economist for the Canadian Manufacturers and Exporters Association in Mississauga, Ontario. Canadian and U.S. companies will run operations based on earnings-driven, bottom-line financial results, he said in a telephone interview.
``In that light, we haven't seen the full impact of layoffs and closures in the United States and Canada,'' Myers predicted.
The economist admits he is more bearish than some of his peers who think the recession will be short and shallow, perhaps ending by mid-2002.
Manufacturing sectors, especially automotive and electronics, have a lot of overcapacity and need to restructure, Myers said. Overall, companies will cut costs and keep inventory levels down at the expense of production.
``Until we see earnings turn around, there will be no new investment or new employment,'' Myers noted.
Canada's auto sector was shrinking well before 2001 drew to a close. The sector's single biggest closure occurred in the fall, when General Motors Corp. shut an assembly plant in Ste. Therese, Quebec. Numerous parts suppliers have laid off employees due to the slowdown in vehicle production that began in Canada in March. By the end of July, vehicle parts producers' employment slipped to 128,500 from 132,500 a year earlier, according to DesRosiers Automotive Consultants Inc. of Toronto.
Canada was the largest exporter of auto parts to the United States until 2001, when Mexico surpassed it, according to a report from Scotiabank's Scotia Economics division. Auto parts shipments from Canada ran at an annualized rate of about US$16.2 billion, while exports from Mexico grew to US$17.2 billion in 2001. The report suggested Canadian producers, to regain their dominant market share, need to improve productivity to offset lower labor costs in Mexico.
Canada's economy entered recession in the third quarter, according to government agency Statistics Canada. Real gross domestic product fell 0.8 percent in the period, ending 37 consecutive quarters of GDP expansion.
Canada's major manufacturing provinces, Ontario and Quebec, will be hardest hit in the current recession, predicts the Conference Board of Canada. The country's real GDP will climb just over 1 percent in 2002, but Ontario will register only about 0.8 percent GDP growth and Quebec's will come in at about 0.6 percent. The board forecasts strong rebounds for both provinces in 2003, after they begin recovery in the second half of 2002. Canada overall will register about 4.2 percent GDP growth in 2003.
Newfoundland is expected to be the fastest-growing province in 2002 because oil and gas development will spur its economy. The conference board foresees GDP expansion of 6.3 percent for the Atlantic province and its relatively small population.
The International Monetary Fund expects Canada's GDP to rise only 0.8 percent this year, following growth of 1.4 percent in 2001 and 4.4 percent in 2000.
Canada's slowdown became especially apparent in statistics for October, which showed that exports and imports fell to their lowest levels in two years. Scotiabank said exporters will continue to be pained by border delays in U.S. trade, a slump in commodity prices and depressed global demand. Factory shipments in October also dove to their lowest level in two years, according to Statistics Canada. The 2.9 percent drop vs. the previous month exceeded the 2.5 percent September decline.
Myers does not think a weak Canadian dollar will help the country's industry. While it can help exporters capture sales, it doesn't necessarily help their profitability. They pay more for imports of technology and other products and find it tougher to keep skilled personnel from emigrating to the United States.