ECONOMIC UPDATE QUEBEC CITY METROPOLITAN REGION. October 2010

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1 ECONOMIC UPDATE QUEBEC CITY METROPOLITAN REGION October 2010

2 METHODOLOGY This publication, entitled Economic Update: Quebec City Metropolitan Region, provides a snapshot of the main economic indicators used to evaluate regional performance. It also compares changes in a number of regional economic variables with those of seven other Canadian metropolitan regions (Montreal, Toronto, Ottawa, Winnipeg, Calgary, Edmonton and Vancouver). We selected those reference regions because, like Quebec City, they are located within the eight largest metropolitan regions of the country and because their diversified economies are comparable to that of the Quebec City census metropolitan area (CMA). Four topics were selected for this analysis: economic growth, labour market, investment and tourism. This publication is based on information available in October 2010 and on statistical data published by recognized organizations. NOTICE TO READERS This publication was produced by Quebec International s Department of Economic Studies and Strategic Watch. The Department s professionals are mandated with ensuring the availability of high-quality economic information. They are also responsible for monitoring developments in the economic sphere and business environment at the regional, national and international levels and for conducting various types of research and analysis aimed at identifying opportunities, guiding development strategies and defining initiatives to be undertaken in support of regional economic growth. 2

3 SUMMARY In the Quebec City metropolitan region, the data relating to real GDP, the labour market, the value of building permits and tourism all indicate that the ground lost during the recession has been recovered. However, now that the regional economy is entering an expansion phase, growth prospects for the industrialized countries have been downgraded by the experts due in particular to various disturbing signals from the US and Europe. As a result, the Quebec City CMA will have to take this new context into account because worldwide economic growth is being undermined. In addition, the region will require a sustained influx of private-sector investment in order to maintain the pace of growth since most government economic support programsare winding down. Despite the foregoing, the Quebec City CMA is well positioned to close out 2010 with real GDP growth of around 3% and approximately 10,000 jobs created one of the finest performances in the past five years. The quickening recovery in the services sector and the completion of major private development projects will contribute strongly to maintaining regional momentum. These sectors should continue to perform well since the manufacturing sector will remain fragile, due in particular to the slow recovery of the US economy and to fluctuations in the exchangerate market. 3

4 1 Real GROSS DOMESTIC PRODUCT GDP continued to grow in the Quebec City CMA in the second quarter of 2010, reaching a record high of $25.7 billion. However, reflecting the broader Canadian economy, growth in regional economic activity was less vigorous in the second quarter than it was during the first three months of the year. Indeed, second-quarter GDP grew by 0.6%, down from 1.9% in the first quarter of Quebec City s GDP hits a new record of $25.7 billion Real GDP growth in the second quarter was undoubtedly affected by the 0.9% drop in manufacturing output. However, there are still uncertainties surrounding the US economic recovery. This situation is hampering the manufacturing sector s full recovery since the US is still the main export market for regional companies. The same observation may be made for most other Canadian regions. In contrast, the services sector posted growth of 0.7% in the second quarter. Production was up by more than 1.0% in the financial services/insurance and information/cultural services sectors. Business, commercial and transportation services and public utilities all recorded lower slightly lower growth, ranging from 0.1% to 0.9%. The construction sector kept up the pace of the past several months, with quarterly growth of 2.1%. The strong performance of the residential housing sector, combined with the completion of several major institutional and road projects, gave the regional economy a boost last spring. Overall, Quebec City s economy will continue to expand until year-end, with annual growth expected to be approximately 3.0% for 2010, up from the 2.5% forecast at the beginning of the year. The labour market s vigorous recovery during the summer, the completion of numerous major projects and the strong performance of the niches of excellence, which account for approximately 75% of GDP, will help to stimulate regional production. 4

5 Quarterly Real GDP Growth (%) Q Q Q Quebec City Toronto Hamilton Ottawa Calgary Edmonton Winnipeg Halifax Saskatoon Montreal Regina Vancouver Victoria Sources: The Conference Board of Canada and Quebec International Unemployment Rate and Employment Rate in Quebec City CMA % % Q Q Q Q Q Q Unemployment Rate Employment Rate Sources: Statistics Canada and Quebec International 5

6 2 The LABOUR MARKET The Quebec City CMA is set to record a gain of 8,000 to 10,000 new jobs in pace of job creation picked up in the Quebec City CMA over the summer. According to the Labour Force Survey (LFS), the region had 417,900 workers in the third quarter of 2010, representing an increase of 32,200 jobs over the same period in The Quebec City region posted the third best performance in Canada, behind Toronto (+125,000 jobs) and Montreal (+57,000 jobs). In addition, the increase in employment (+8.3%) was faster that that of the active population (+7.4%) in the third quarter; this drove unemployment down significantly to 4.4% (5.2% in 2009), which works out to the lowest rate in Canada. Job creation in the Quebec City CMA in the third quarter of 2010 was divided evenly between full-time and part-time positions. Moreover, the region had an additional 32,000 persons aged 25 or older in the labour market this summer compared with last year. This fine performance helped keep unemployment extremely low in this age group: 3.4% (compared with 8.9% among 15 to 24 year-olds). Hiring picked up among services companies in the third quarter of 2010, with an increase of 43,000 jobs compared with the same period in Professional, scientific and technical services, together with public services (education, healthcare, social services and public administration) and hotel/restaurant services were the most active sectors in terms of hiring. Following a slack first half of the year, the number of workers increased on development projects in the Quebec City region this past summer (+2,400 jobs). Several major residential and non-residential projects were at their peak periods, and this situation could continue until the end of the fall. In the manufacturing sector, the Quebec City CMA had 14,500 fewer jobs in the third quarter of 2010 than it did one year ago. The conclusion of various government support programs, combined with the slowdown in exports, particularly to the US, had a dampening effect on hiring in the overall manufacturing sector; this phenomenon was also observed at the provincial and national levels. In view of the labour market s fine performance in the third quarter, we will be upgrading our full-year forecasts. According to the latest LFS results, the Quebec City CMA is set to record a gain of 8,000 to 10,000 new jobs in 2010 its best performance in the past five years. 6

7 INVESTMENTS 3At the present time, the construction sector is one of the cornerstones of Quebec City s economy, which helps keep the value of building permits at record highs. The cumulative value from January to August topped $1.2 billion, or an annual growth rate of 5.6%. This regional performance beat the figures recorded prior to the crisis in In addition, according to data compiled by Quebec International, the private sector plans to invest more than $3 billion in Quebec City s non-residential sector between 2010 and The residential market is also having a good year: the value of business permits was growing at an annualized rate of 17.4% after the first eight months of The still limited supply of rental accommodation and the popularity of affordable semi-detached and row housing led to the start of numerous building projects. However, the amazing figures posted between January and June were not quite so impressive during the summer. Total housing in the metropolitan region grew by 1,668 units in the third quarter, down from 1,760 units one year ago. The expiration of the government tax credit and the gradual tightening of credit conditions drove down the number of potential buyers, and this situation is expected to continue this fall. Despite a slight drop in the number of housing starts in the Quebec City CMA until the end of the year, more than 5,000 new units will have been added in 2010 one of the best performances in the last seven years. From January to August, the cumulative value of building permits topped $1.2 billion. Although the value of building permits issued in the region was down 14.4% after the first eight months of the year, the non-residential sector also remains highly active in Quebec City. The institutional sector is still focused on three major projects with a combined value of approximately $200 million. The head office expansions undertaken by La Capitale Financière and the Quebec Automobile Insurance Corporation (SAAQ), together with the construction of a new federal government building by GM Development, will help add more than 500,000 square feet of office space. Moreover, the industrial sector is also showing signs of recovery, although the pace of growth is closely linked to the US economic recovery. Defying expectations, the commercial sector has been less prominent this year, although mention should be made of the Galeries de la Capitale expansion project (valued at close to $100 million), which will add 160,000 square feet to the shopping centre. A number of projects are on the drawing board, although a more sustained economic recovery will be required before developers move ahead with them. 7

8 Value of Building Permits by Sector Millions of $ % +4.0% Residential +53.5% % Industrial (11.1%) (55.7%) Commercial (28.6%) +40.3% Institutional T T Sources: Statistics Canada and Quebec International Housing Starts By Type of Dwelling Number ,3% ,1% (12,0%) +95,7% +38,5% +26,7% +10,7% +144,7% +74,1% (15,4%) +470,0% (3,5%) +5,4% Single-family dwellings Semi-detached dwellings +191,7% Row houses +54,8% Condominiums Rental housing Q Q Q Sources: Canada Mortgage and Housing Corporation and Quebec International 8

9 4 TOURISM The tourist industry continued to show momentum in the Quebec City CMA in the second quarter of According to the Quebec Tourism Office (OTQ), the composite index for tourism was up 2.9 basis points compared with the same period in 2009, reaching This increase was due to growth in the hotel occupancy index (+5.5%) and restaurant visits (+2.0%), thereby offsetting the drop in the number of visitors to sites/attractions (-1.0%) and retail stores (-1.6%). The regional tourist sector should continue to perform well, particularly since Quebec City s airport was a hub of activity during the summer of According to airport authorities, a total of 287,697 persons (inbound/outbound) transited through the facility in the third quarter, for a year-over-year increase of 15.9%. The larger number of crossborder and international flights generated passenger count increases of 21.1% and 6.5% respectively. In addition, the number of travellers on domestic flights grew by 17.1% compared with one year ago. Tourism Indicators for the Quebec City Region Restaurant industry meals served index Lodging room occupancy mindex Sites and attractions admissions index Retail stores transactions index Total tourist activity aggregate index 0 20 Q Q Sources: Quebec City Tourism and Quebec International

10 Non-residential private investment projects (underway) in the Quebec City CMA Projet Investment (millions of $) Sector Description Bell Immeubles Cominar La Capitale financial group Redcliff Realty Management GM Développement Desjardins Financial Security Telus RONA Novik Teknion Roche Ltd. Robitaille Marine Gaz Métropolitain Telecommunication Optical fibre network installation Real estate services Construction of an office tower Insurance Construction of an office tower Commercial Galeries de la Capitale expansion 60.0 Public Construction of an office tower 50.0 Real estate services Business park development 30.0 Real estate services Office building project 25.0 Commercial Construction of a new store 12.9 Polymer coating Plant expansion 8.1 Furniture manufacturing Construction of a distribution centre 8.0 R&D Construction of a multi-purpose building 6.5 Commercial Construction of a warehouse 5.0 Energy Gas distribution system upgrade Compilation: Quebec International 10

11 Primary economic indicators Quebec City CMA Q-2 Q-3 Q-4 Q-1 Q-2 Q-3 Seasonally adjusted statistics Real GDP (In millions of 2002 $) Annual change (%) Disposable income per capita ($) Annual change (%) Retail sales (millions of $) Annual change (%) Consumer price index (2002 = 100) Seasonally unadjusted statistics Labour market Active population Number of jobs, overall Manufacturing Food processing Chemicals Rubber/plastic products Metal products Transportation equipment and machinery Computer, electronic and electrical products Construction Services Public utilities Financial, insurance and real estate services Professional, scientific and technical services Wholesale and retail trade Transportation and storage Accomodation and food services Public administration Unemployed persons Unemployment rate (%) Participation rate (%) Employment rate (%) Real estate Housing starts Single-family dwellings Semi-detached and row houses Condominiums Rental housing Resale market Residential vacancy rate (%) Desjardins Affordability Index Office building vacancy rate (%) Value of building permits (thousands of $) Commercial (thousands of $) Industrial (thousands of $) Institutional (thousands of $) Residential (thousands of $) Bankruptcies Personal bankruptcies Business bankruptcies Tourism Total tourist activity - aggregate index Lodging - room occupancy index Sites and attractions - admissions index Retail stores - transactions index Restaurant industry - meals served index Hotel occupancy rates (%) Overall number of passengers at Quebec City Airport 24, , , , ,682.1 NA 0.1 (0.7) NA 28,093 28,316 28,430 28,457 28,699 NA NA 11,105 11,381 11,567 11,981 11,777 NA (2.6) (1.1) NA NA 420, , , , , , , , , , , ,900 31,800 39,200 36,500 32,700 27,000 24,700 4,600 7,400 7,600 6,200 6,500 6,300 1,600 2,100 1,800 2,100 3,000 1,800 3,900 4,100 3,400 NA NA NA 4,200 3,000 3,000 4,700 4,800 2,200 2,900 4,900 4,200 2,400 1,500 NA 1,700 2,000 2,200 1,600 NA 2,500 NA NA 1,900 NA NA 21,800 18,600 18,600 16,000 16,700 21, , , , , , ,900 NA 3,400 2,000 2,500 4,800 5,100 37,800 34,000 36,900 32,900 32,000 33,500 29,200 26,800 28,700 28,800 35,000 35,800 28,300 24,400 28,700 29,300 31,100 74,200 73,000 70,800 61,200 64,500 66,000 9,400 10,400 13,700 13,200 14,600 12,200 24,600 22,100 24,500 29,300 27,300 28,100 36,100 37,800 38,800 41,900 50,500 53,400 18,400 21,100 19,000 20,500 23,800 19, ,662 1,760 1,600 1,125 2,050 1, ,382 1,764 1,869 2,181 1,977 NA NA , , , , ,603 NA 187, , ,848 93,508 93,508 NA 6,398 22,226 10,699 10,477 10,477 NA 32,612 32,512 15,719 17,246 17,246 NA 289, , , , ,372 NA NA NA 230, , , , , ,697 Sources: Conference Board of Canada, Canada Mortgage and Housing Corporation, Quebec Statistics Institute (ISQ), Quebec Federation of Real Estate Boards, Office of the Superintendent of Bankruptcy, Altus Group, Quebec City Tourism, Statistics Canada, Quebec City Airport, Desjardins Group and Quebec International NA: Not Available

12 Quebec City region Seasonally adjusted statistics Real GDP (In millions of 2002 $) Annual change (%) Disposable income per capita ($) Annual change (%) Retail sales (millions of $) Annual change (%) Consumer price index (2002 = 100) Seasonally unadjusted statistics Labour market Active population Number of jobs, overall Manufacturing Food processing Chemicals Rubber/plastic products Metal products Transportation equipment and machinery Computer, electronic and electrical products Construction Services Public utilities Financial, insurance and real estate services Professional, scientific and technical services Wholesale and retail trade Transportation and storage Accomodation and food services Public administration Unemployed persons Unemployment rate (%) Participation rate (%) Employment rate (%) Real estate Housing starts Single-family dwellings Semi-detached and row houses Condominiums Rental housing Resale market Residential vacancy rate (%) Desjardins Affordability Index Office building vacancy rate (%) Value of building permits (thousands of $) Commercial (thousands of $) Industrial (thousands of $) Institutional (thousands of $) Residential (thousands of $) Bankruptcies Personal bankruptcies Business bankruptcies Tourism Total tourist activity - aggregate index Lodging - room occupancy index Sites and attractions - admissions index Retail stores - transactions evolution index Restaurant industry - meals served index Hotel occupancy rates (%) Overall number of passengers at Quebec City Airport Q-2 Q-3 Q-4 Q-1 Q-2 Q-3 385, , , , , , , , , , , ,700 28,400 34,000 29,400 27,900 23,600 20,500 4,100 6,800 5,500 3,500 3,500 2,800 NA 2,300 1,800 2,400 3,000 1,900 2,700 2,300 2,100 NA NA NA 3,000 2,400 2,800 4,200 4,300 2,200 3,100 1,900 NA NA NA NA NA NA NA NA NA 2,600 19,200 15,700 15,100 11,300 13,600 17, , , , , , ,400 1,700 3,900 2,100 2,500 4,800 3,500 28,300 24,400 28,700 29,300 25,400 27,400 31,400 65,300 62,700 61,000 55,800 59,200 60,600 10,300 10,600 12,200 10,400 11,500 11,100 23,900 22,400 21,900 25,900 25,200 26,900 33,100 34,400 36,700 36,200 40,500 44,800 19,000 19,900 19,100 20,600 20,400 16, , , , , ,151 NA 197,004 91,051 72,354 72,205 91,173 NA 6,210 17,775 9,479 10,649 44,180 NA 28,610 30,107 15,499 17,721 45,291 NA 313, , , , ,507 NA NA NA NA NA NA NA NA NA Sources: Conference Board of Canada, Canada Mortgage and Housing Corporation, Quebec Statistics Institute (ISQ), Quebec Federation of Real Estate Boards, Office of the Superintendent of Bankruptcy, Altus Group, Quebec City Tourism, Statistics Canada, Quebec City Airport, Desjardins Group and Quebec International NA: Not Available

13 GLOSSARY CENSUS METROPOLITAN AREA (CMA) Area formed by one or more neighbouring municipalities located around a major urban centre. To constitute a CMA, an urban centre must have at least 100,000 inhabitants. To constitute a census agglomeration, an urban centre must have at least 10,000 inhabitants. UNEMPLOYED Individuals who are available to work, have no paid employment and actively looking for work. ACTIVE (WORKING) POPULATION Civilian population aged 15 years old and higher not living in an institution and or on a reserve, either employed or unemployed. PARTICIPATION RATE Active population expressed as a percentage of the total population aged 15 years and older. EMPLOYMENT RATE Number of active workers expressed as a percentage of the total population aged 15 years and older. UNEMPLOYMENT RATE Number of unemployed expressed as a percentage of the active population. CONSUMER PRICE INDEX (CPI) Measure of the changes in the price paid by consumers for a basket of goods and services. GROSS DOMESTIC PRODUCT (GDP) The total unduplicated value of the goods and services produced in an economic area (such as a region) during a given period, regardless of the ownership (foreign/domestic) of the production factors. GDP at basic prices corresponds to the GDP calculated at market prices, less tax deductions applicable to goods, plus consumer subsidies. DISPOSABLE PERSONAL INCOME Personal income less direct personal income taxes, social insurance contributions and other current transfers to public administrations. CAPITAL INVESTMENTS Capital expenditures related to new construction projects and major improvements to existing buildings, in addition to purchases of new machinery and equipment. These expenditures also include individual expenditures on residential construction, but do not include purchases of land, existing buildings or used machinery or equipment (unless imported). 13

14 VALUE OF BUILDING PERMITS Corresponds to the value of planned building projects in the non-residential sector, the number of authorized dwelling units and the value of building projects in the residential sector. DESJARDINS AFFORDABILITY INDEX Measure used to determine whether the housing price level is sustainable by comparing the cost of owning a home compared with household incomes. The value of the index is obtained by calculating the ratio between average disposable household income and the income level required by financial institutions for financing purposes. TOURISM INDEX The baseline index of 100 corresponds to the relation between the sum of the results of a sample taken during a given month and the sum of the results of the same sample for the same month in the baseline year. HOTEL VACANCY RATE The relation between the number of occupied hotel rooms and the number of available hotel rooms in a given area VACANCY RATE The percentage of apartments and row houses unoccupied and available for rent. 14

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