March 8, 2010

2010 Ontario Construction Secretariat conference

Tax hikes, spending cuts on the radar, OCS told

IAN HARVEY

correspondent

Ontario’s manufacturing sector may be under stress, but don’t count it out, attendees at the Ontario Construction Secretariat’s 2010 Outlook and State of the Industry and Conference were told.

The 600 or so people in attendance also heard that we can expect to see regular rises in interest rates — about a quarter-point per month — starting in June. Higher taxes and spending cuts at both the federal and provincial levels will also be on the radar in the next two years.

Jayson Myers, CEO of Canadian Manufacturers and Exporters, reminded the audience of union leaders and contractors that manufacturing drives 30 cents of every dollar flowing into the construction sector and remains a key economic driver, despite recent setbacks.

“A lot of people who should have known better were saying manufacturing in Canada was going out of business in the 1990-91 recession and they’re saying it again,” he said. “While we lost 400,000 jobs in that recession, in the following years, we created 800,000 jobs, making it the number-one sector in job creation.”

Still, he said, manufacturing is facing an uphill battle.

The strong loonie, protectionism and rising energy costs will all present challenges, he said.

A demand for more innovation, better supply-chain management and specialized, value-add manufacturing will boost the need for facility upgrades, creating work for construction.

“And I think there are signs that customers are coming back,” Myers said. “Especially in automotive. I wouldn’t be surprised to see a 10 per cent growth in manufacturing this year, though it certainly won’t take us back to the levels of December 2008.”

Canadian manufacturing’s traditional reliance on a cheap domestic currency relative to the U.S. dollar is at risk, said consultant and economist Dr. Lloyd C. Atkinson.

Oil and commodity prices drive the loonie more than the value of our neighbour’s currency, he said and the Canadian dollar should hold and may even stay above parity over the next couple of years.

The U.S. dollar, he said is not in as much trouble as some suggest, since China, Singapore, Taiwan and Japan have all bought American debt to keep their own currencies from rising and placing their manufacturing sectors at a competitive disadvantage.

More likely is a softening of the Euro, since the diversity of the European economy acts against a one-size-fits all central-bank policy.

The bigger risks on the horizon are inflation and rising interest rates, he said.

“The central banks in Canada, Europe and the U.S. have shown they have a zero tolerance for inflation and if they see any in the system they will come down on the economy like a ton of bricks and raise interest rates,” he said.

Interest rates will rise, starting this summer and reaching three per cent by 2011 short- term and four to 4.5 per cent long-term.

Rising debt-servicing pressures will also force federal and provincial governments to look at cutting spending and raising taxes, he said.

Western Canada may be able to gamble that rising commodity prices and a faster recovery will raise revenues, but that option won’t work in Ontario with an economy driven by financial services and manufacturing.

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