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The Waterloo Region and Guelph area is one of the brightest lights in the Ontario and Canadian economies, and should outpace the rest of the country in growth during the latter part of this decade, according to a new report issued by the BMO Financial Group Economics Department.  The growth will be driven by fast-growing sectors like advanced manufacturing, biotechnology, and information and communications technology.  The near-term outlook, however, will be restrained by weakness in the auto sector.

Waterloo Region and Guelph: A High-Tech, High-Growth Future was released at a breakfast presentation in Kitchener this morning by Rick Egelton, Senior Vice-President and Chief Economist, BMO Financial Group.

“The Waterloo Region and Guelph area is part of the manufacturing heartland of Ontario,” said Mr. Egelton.  “Manufacturing accounts for a larger share of employment in the area than in Ontario, which in turn has a higher share of employment in manufacturing than Canada. The area is also an important financial centre, with many insurance companies having head offices and/or major operations centres in the area.”

He further noted that the area has developed significant industrial clusters in advanced manufacturing, biotechnology, customer contact centres, food and beverages, furniture, information and communications technology, and transportation and logistics.

The report points to four main factors which contribute to the outlook for growth in the region:

1. The area has a relatively youthful population and strong net in-migration.
2. The excellent educational institutions in the area give it a competitive advantage.
3. The area's industrial mix positions it for growth. The advanced manufacturing, information and communications technology, and biotech clusters, in particular, should show brisk growth over the last part of the decade.
4. A generally positive economic outlook for the United States and Canada bodes well for the area, which is highly integrated into the North American economy.

“The economy of the area grew an estimated 5.1 per cent in 2005, which significantly exceeded the 2.9 per cent growth rates for both Ontario and Canada,” said Mr. Egelton.    “Employment also rose much faster here than in the rest of the province and country, with a rate of 3.5 per cent compared to Ontario's 1.3 per cent and Canada's 1.4 per cent.”

Mr. Egelton noted that although the area's economy will continue to operate at a high level in 2006, the pace will slow from last year's torrid pace to 2.6 per cent.  “Growth of 5.1 per cent simply cannot be sustained,” he said.  “With the notable exception of non-residential construction, most sectors of the economy will show lower growth in 2006 than in 2005. The manufacturing sector will continue to be challenged by the strong Canadian dollar, high energy prices and increasing competition from Asia.  The auto sector may be particularly hampered by these factors.”

It is over the medium term, 2007-2010, where economic growth in the area should rise again.  “The growth rate is expected to average about 3.3 per cent annually – slightly faster than Ontario and Canada,” stated Mr. Egelton. 

The report also mentions four challenges that the region faces over the next few years that could hamper growth:

1. The adjustment to the stronger Canadian dollar and the increasing competition from Asia.
2. Meeting emerging shortages of skilled labour.
3. Keeping more of its university and college graduates in the area.
4. Keeping up with the demand for serviced industrial lands.

“Fortunately, most of these challenges result from the area's successes rather than its failures,” noted Mr. Egelton.

The full report is available at www.bmo.com/economic.

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