Manufacturing is leading Canada's economy out of recession, though domestic and global challenges remain, new report shows

• Latest "The Real Economy Canada" report also shows that Canada's housing market accounted for two-thirds of economic growth in the first quarter, with demand likely to continue.
• Business hubs such as Toronto and Vancouver are showing how a digital economy can blunt the effects of trade wars and the pandemic.
• However, President Biden's new U.S. industrial policy points to deepening trade frictions between the two countries, while stagnant business investment poses problems for long-term economic development.

TORONTO, July 19, 2021 /CNW/ - RSM Canada ("RSM"), the leading global provider of audit, tax and consulting services focused on middle market businesses, today launched its summer 2021 issue of "The Real Economy: Canada"– a quarterly report that provides Canadian businesses with economic analysis and insights into factors driving growth, or economic headwinds, in Canada's middle market.

With lockdown restrictions lifting from coast-to-coast, the third edition of this year's "The Real Economy: Canada" report examines what strong performances from Canada's manufacturing and housing sectors mean for Canada's long-term growth, and how that growth may be stifled due to ongoing trade tensions with the United States and lagging business investment. The report also shines a light on resiliency in the energy sector, and how Toronto and Vancouver have managed to recession-proof their economies.

Key findings in this quarter's report include:

1. Canada's manufacturing sector is outperforming pre-pandemic levels
• Q1 manufacturing sales & railway car loadings surpassed pre-pandemic outputs.
• Rising consumer expectations coincided with the rebound in manufacturing new orders, which shows the importance of the production sector in downstream economic activity.
• Ontario stands to gain exponentially from automotive brand commitments to electric vehicle investment following shifting consumer & business expectations.
2. Canada's housing market remains bullish
• Housing sector remains at the forefront of North America's economic recovery despite headwinds facing the housing ecosystem.
• Demand likely to continue as millennials become the backbone of consumer demand and the workplace.
• Continuing spikes in household savings indicates we may see greater housing market investment once consumers deem the pandemic less of an economic threat.
• Tariff reduction – particularly on Canadian lumber – will also be necessary to sustain the sectors performance.
3. Toronto and Vancouver proving resilient despite adverse economic conditions
• Accumulation of new-economy businesses in technology, media and entertainment have allowed both business hubs to prosper.
• Both talent supplies greatly benefit from access to premier academic institutions, proximity to U.S. & Asian markets, and accommodative government policies.
• Vancouver's technology sector has grown at a 29 per cent annual rate – the fastest in North America – while Toronto has grown its reputation as a digital incubator.
4. The return of American industrial policy may heighten CAN-U.S. trade tensions
• Canadian manufactured products face market challenges in wake of Biden's 'Buy American' provisions.
• Nearly two-thirds of Canada's GDP depends on trade; the U.S. represented 73 per cent of Canadian exports in 2020.
• Canada could feel indirect effects of latest U.S. industrial legislation if it fails to keep pace with its southern neighbour.
  Canada's attempts to diversify its trade market with countries like China, which only represents 5 per cent of domestic exports, has had mixed results to-date.
5. Business investment continues to hit a wall
• Total business investment remains over 14 per cent below pre-COVID levels, which signals trouble for Canada's long-term economic development.
• Increases in household disposable income continue to outpace consumption, indicating further consumer sector imbalance.
• Refocusing the economy on strengthening the labour force and its ability to produce diversified items of value will be key to attracting capital long-term.
6. Despite turmoil, the energy sector's importance to the economy has increased over recent years
• In 2020, energy products comprised 18.4 per cent of Canada's total exports to the United States, up from 8.7 per cent in 1998.
• In the first quarter of 2021, that ratio has grown even more extreme, with energy products accounting for 21.9 per cent of Canada's total exports to the United States.
• The timeline of transition to an all-electric economy remains undefined, suggesting a floor under the price of oil in the medium term.

"Canada's manufacturing sector has almost singlehandedly pulled the country out of recession in recent months, and this strong performance, coupled with promising signs from other areas such as real estate and energy, suggests that better days are ahead for the economy", says Alex Kotsopoulos, partner, projects and economics with RSM Canada. "But there's still plenty of work to be done on the trade front. Canada's over-reliance on the U.S. leaves it vulnerable to any trade frictions that happen between the two nations, and we're seeing that effect now as the Biden administration continues to focus first and foremost on rebuilding the U.S. economy."

Joe Brusuelas, chief economist with RSM US LLP., added: "While there are promising signs, business investment is still too low, and this is something that's slowing down the potential for economic growth. Ultimately, the government needs to be investing in the middle market and investing in productivity through measures like the universal expansion of broadband coverage, childcare, housing and nutritional security. These commitments, coupled with the ability of the younger generations to work remotely, will allow for sustained growth."

For more information on RSM Canada's 'The Real Economy: Canada', or to download the report, please visit their webpage.

About RSM Canada

RSM's purpose is to deliver the power of being understood to our clients, colleagues and communities through world-class audit, tax and consulting services focused on middle market businesses. The clients we serve are the engine of global commerce and economic growth, and we are focused on developing leading professionals and services to meet their evolving needs in today's ever-changing business environment.

RSM Canada LLP provides public accounting services and is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms with more than 48,000 people in 120 countries. RSM Alberta LLP is a limited liability partnership and independent legal entity that provides public accounting services. RSM Canada Consulting LP provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International.  For more information visit rsmcanada.com, like us on Facebook, follow us on Twitter and/or connect with us on LinkedIn.

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