- November 4, 2019
Manufacturers continue to focus on investment to remain globally competitive
While the past couple of years have not been easy for Canadian businesses, 2019 saw some positive changes. Recent economic data released by Deloitte Insights indicate the economy is slowly but surely coming out of hibernation with an expected growth of 1.7 per cent in 2020.
The steel and aluminum tariffs and counter tariffs have been lifted, and although there is still a considerable amount of uncertainty caused by the lack of a trade agreement, recent industry surveys reveal that manufacturers in Canada are remaining fairly strong and are focused on investing in new technology, expanding and hiring new employees.
In a survey commissioned by Shop Metalworking Technology, 44.5 per cent of the respondents reported that investment plans for new machinery and equipment will remain the same as 2019. Within the next year, 67.5 per cent of those surveyed said they plan on hiring new employees, and 33 per cent plan on expanding their operations.
The semi-annual ISTMA Business Conditions report by the Canadian Tooling and Machining Association (CTMA) shows the amount of members reporting business conditions as “Fair” has doubled from 21 per cent to 40 per cent in six months. “Although the Canadian tooling sector has remained fairly static over the last six months, 10 per cent of companies reported excellent conditions, which is up from zero per cent,” says Robert Cattle, executive director of the CTMA. “In terms of changes in the past year, it’s quite varied depending on where your company’s focus is. There are a lot of companies willing to invest in technology and this has been helped by the capital equipment write off introduced in the last fiscal update. It’s given companies more incentive to invest.”
A global perspective
The Conference Board of Canada recently published its Provincial Outlook Executive Summary: Summer 2019, which provides a view of 2020’s economic challenges and how slowing global growth will weigh on provincial economies. “I think the interesting piece right now, if I were in business, would be a broad view of what’s going on with all of the risks to the global economic outlook and if there’s a recession brewing,” says Pedro Antunes, chief economist for the Conference Board. “I think there are a lot of risks in terms of the global economy when we consider the tariff war between the U.S. and China. There’s also the Brexit negotiation, as well as some concern about the Middle East. If a war breaks out, it would be a major shock.”
Antunes adds that although economic prospects are picking up, not all provinces will face the same reality. When you look at environmental policies—particularly for the oil and gas sector—Texas is booming, while Alberta continues to face transportation bottlenecks, which is weighing on energy investment, and it will experience a mild recession this year.
“We’re also seeing other provinces that will have weaker growth. Newfoundland and Labrador is the most challenged economy because of its fiscal situation. We’ve seen that region come off of a period where they had a lot of construction, big projects with hydroelectric development, and Hebron’s offshore oil field. Even though we have a really strong GDP growth for 2020 there, essentially that’s all Hebron, which is very capital intensive. It generates profits for the industry and revenue for the government, but it doesn’t create a lot of jobs. The situation for Newfoundland and Labrador is really tough because up until 2014 they were seeing increases in government spending inline with their revenues and, of course, those revenues dropped off drastically when oil prices collapsed.”
On the bright side, Antunes notes that provinces such as Ontario, Quebec and B.C. have experienced some really strong job growth in business services, and tight labour markets mean wages are starting to increase.
But when it comes to companies investing, higher wages and a lack of skilled workers are main issues holding them back. “There’s been a sizable restructuring in manufacturing and there’s been a change in the type of manufacturing jobs as there’s more automation now. When we look ahead, we’re seeing stable employment in the sector. That’s positive, but we’re not seeing a lot of investment, which is more concerning,” says Antunes. “When we look at private investment in the resource sector, manufacturing and utilities—all of which has been the heart beat of Canada’s economy for decades—that investment has eased sharply and there have been a lot of challenges since the new U.S. administration has come into power. There is a lot of concern around what might happen with our access to the U.S. market. And I think that even after we’re seemingly on our way to signing this new NAFTA agreement, I don’t think those concerns will go away.”
Another element worth noting is around tax competitiveness when you compare Canada and the US. Antunes says, “this has been a big issue especially since the U.S. administration dropped taxes in early 2018. Corporate income taxes in the U.S. and Canada are really favouring investing in the U.S. rather than here. I think this will have some impact as well.”
From the last CTMA board of directors meeting, Cattle says there is still significant uncertainty around the trade agreement with the U.S. And in terms of growth for CTMA members, it truly is a mixed bag. “Our Windsor, Ont.-based mould makers have been hurting for awhile. In general, tool and die shops and stamping operations have been generally busy, which is also true for shops involved in die-casting. Many are telling me they have been busy, and there are shops that are so busy they can’t find enough workers and are turning work away. A few of these shops are also now undergoing large expansions to their premises to add much needed capacity. Some of our shops that are in heavy oil and gas are very busy supplying fracking equipment and high pressure manifolds to the southern States.”
Given all of the global economic variables and the unstable relationship with our biggest market, Canadian companies are certainly holding their ground. And despite the looming uncertainty, 2019 saw manufacturers and fabricators loosening the purse strings to invest in new technology. While the momentum of investment might be modest, it is key to remaining competitive, especially with our neighbours to the south. SMT