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Oil and gas services, electronic products, machinery, plastic products, and business services will be amongst the fastest growing industries in Canada during the 2004-2006 period, according to a new report released today by the BMO Financial Group Economics Department.

The new BMO economic report titled ‘Prospects for Canada’s Industries: 2004-2006’ examines almost 50 industries to determine which areas will grow faster than the overall economy over the next three years, and which are expected to fall behind the overall trend lines.  The sectoral review is based on the bank’s forecast of the macroeconomic environment in Canada.

“We forecast the Canadian economy to grow by 2.8 per cent this year, tempered by a manufacturing sector which is still coming to terms with a higher Canadian dollar,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “The expansion is projected to gain momentum to 3.5 per cent in 2005 and then moderate to a longer-term sustainable pace of 3.3 per cent in 2006.”

“Industries vary to the degree that they are sensitive to the economic cycle,” said Sweet.  “Financial services, transportation, and printing tend to grow at the same pace as the overall economy.  Others -- including wholesale trade, machinery manufacturing, business services, plastic products, and motor vehicles parts -- grow much faster than the overall economy during expansions and should do particularly well during the next few years.”

BMO economists forecast that the Oil and Gas Services sector will be one of the fastest growing industries during 2004-2006.  This sector supplies services to companies engaged in oil and gas exploration, development, and extraction. 

“On the extraction side of the oil and gas industry, we forecast that production will find new legs, spurred by high commodity prices and rising cash flows.  Output in this sector is projected to expand at a 3.7 per cent pace during the 2004-2006 interval, following very sluggish growth during the past ten years,” said Sweet.  “This acceleration should reinforce the growth of oil and gas service providers, which is projected to run at a robust 7.4 per cent pace through 2006,” said Sweet.  “This sector is also benefiting from the outsourcing of services by oil and gas extraction companies.”

The BMO Sectoral Outlook Report also notes that computer and electronic products are in for a period of relatively strong growth, albeit not at the blistering 35 per cent average pace of 1999 and 2000.  The forecast calls for growth in this sector to average 7.6 per cent annually over the next three years, marking the beginnings of a recovery from the sharp retrenchment of the past three years.

“New orders and shipments of electronic equipment have already begun to rise, helping to reduce inventories from their excessive levels of the past few years,” said Sweet.  “The Canadian industry is technologically competitive.  And, with the financial position of telecom service providers improving after massive restructuring, capital spending on equipment and software is now on the rise, bolstering prospects for providers of electronic equipment.”

The plastic products industry, engaged in the processing of synthetic resins, is another sector expected to show strength in the upcoming years.  Output is forecast to rise 4.3 per cent during 2004-2006.  “Although the plastics sector will outpace the economy over the forecast interval, its expansion will be less than half its 9.2 per cent pace recorded during the 1998-2003 period,” said Sweet.  “The sector will certainly feel the effects of a stronger Canadian dollar, higher resin costs, and the anticipated loss of momentum in home construction.”

Motor vehicle parts manufacturing is another area that is expected to benefit from the cyclical growth in consumer demand.  “Given our expectations for an improvement in North American auto sales, we expect that the output of vehicle assemblers in Canada will grow at an average annual pace of 3.1 per cent during the 2004-2006 interval,” said Sweet.  “The prospect for parts manufacturers is even better, as vehicle assemblers continue to outsource non-core activities.  Growth for parts producers should run close to 5 per cent.”

“The market for machinery and equipment is finally turning the corner after three years of decline, as capital spending is picking up smartly,” said Sweet.  “Investment is responding positively to rising industrial output, capacity utilisation, improving corporate balance sheets, and interest rates still at relatively low levels.”

Some segments of the services sector are also projected to record healthy growth rates.  “Companies that provide services to business – including computer software and integration, legal, accounting, architectural, engineering, advertising, and waste remediation – should continue to grow faster than the overall economy, leveraging the trend of outsourcing and the improving financial situation of their clients,” noted Sweet.  “Additionally, wholesalers should sustain brisk growth, spurred by rising international trade and accelerating business investment, key drivers of the industry.”

Fastest Growing Industries During 2004-2006
average annual % change in real output

The full BMO Financial Group Sectoral Outlook Report, Prospects for Canada’s Industries 2004-2006, is available at www.bmo.com/economic.

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