While fears surrounding NAFTA are driving investment away from Canada, Quebec's economy is outperforming Ontario's, writes Munk Senior Fellow Philip Cross.
OTTAWA, ON (Dec. 21, 2017): Fears about renegotiations of the North American Free-Trade Agreement with the United States are resulting in a reluctance to invest in Canada while Quebec's economy greatly outperformed Ontario's, Munk Senior Fellow Philip Cross said today upon release of the Macdonald-Laurier Institute's latest Quarterly Economic Report.
Firms are shifting investment to the US rather than Canada to hedge against uncertainty about the US commitment to free trade. While employment is up, if demand falters or the trade talks with the US fail, these recently hired workers can be shed quickly.
"Firms in Canada met increasing demand by temporarily boosting employment instead of making the long-term commitment implied by investing," writes Cross. "However, growth is likely to pick up towards the end of the year. One reason is that housing demand will pick up slightly before January 1st, when more strict regulations on mortgage lending take effect that will raise barriers to home-buying."
In addition to housing demand, higher oil prices gave a boost to commodity prices and the Toronto stock market. The manufacturing sector remained the major drag on growth, especially in Ontario. Contrary to the trend through the 1970s to the 1990s, Quebec has had a lower unemployment rate than Ontario in the most recent month.
"The upturn in Quebec's growth follows several years of fiscal tightening that produced budget surpluses that the government used first to pay down its debt and now to lower taxes,” writes Cross. "As well, support of Quebec's separatist party is at an all-time low, removing a competitive disadvantage that encouraged some people and firms to move to Ontario over the past four decades."
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Philip Cross is a Munk Senior Fellow with the Macdonald-Laurier Institute. He previously served as the Chief Economic Analyst for Statistics Canada, part of a 36-year career with the agency.
Cross's Quarterly Economic Reports provide analysis of the latest economic data and results of the Macdonald-Laurier Institute's Leading Economic Indicator, designed to signal an upcoming turn in the business cycle, either from growth to recession or from recession to recovery, six months in advance.
The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.