Canada: Manufacturers' Outlook: Three Reasons To Look Forward To 2017

Last Updated: January 10 2017
Article by Jim Menzies

Between Brexit, a Donald Trump presidency and a fluctuating loonie, no one knows exactly what 2017 will bring for manufacturing—but many Canadian manufacturers are nevertheless cautiously optimistic about the year ahead.

That was the view reflected by most of the 526 senior executives that took part in PLANT Magazine's Manufacturers' Outlook 2017, an annual survey co-sponsored by Grant Thornton. Fifty-five percent of the survey's respondents revealed they were cautiously optimistic about their business prospects in 2017, with 52% expecting to increase their orders, 55% expecting to grow their sales and 42% expecting to increase their profits, all while keeping their pricing the same.

Sure, these executives also expect their fair share of challenges. Many foresee their top pressures over the next three years to revolve around pricing (50%), controlling/reducing costs (50%) and improving sales/orders (48%). Finding ways to fill the skilled labour shortage—and create attractive and lasting opportunities for the millennial workforce—is also high on the list, and something 60% hope to address with increased investments in training.

That said, opportunities may abound, thanks to three key macroeconomic factors.

Improved economic growth

With the Bank of Canada downgrading its expectations of GDP growth to 1.1% in October,1 it's safe to say the Canadian economy was rather disappointing in 2016—and Canadian manufacturers felt the pinch. A main reason for this under-performance was a weaker-than-expected first half for the US economy. With the United States now on the upswing, as well as the oil and gas sector, Canadian GDP growth is expected to rise to 2% in 20172—and Canadian manufacturers are looking forward to the impact this growth will have on their businesses.

A more stable US dollar

Despite traditionally beneficial conditions, manufacturing output only rose 0.03% in 2015 and the first half of 2016—something that can at least partly be attributed to currency fluctuations. With the depreciation of the loonie and the rapid rise of the US dollar, many expected more of the manufacturing sector in 2016—forgetting how interconnected our global economy really is. A lot of manufactured products in Canada are used to make goods in the United States that are then exported to other countries. But the higher US dollar made these exports more expensive for countries across the globe, causing demand to deteriorate—along with the need for Canadian products.

With the US dollar appreciating much less quickly now, the demand for US exports is starting to strengthen—which is good news for many Canadian manufacturers.

China's growing consumer culture

The emergence of China's middle class is also creating new opportunities for Canadian manufacturers, as China moves away from being an export-dominated economy to one that is more consumer-oriented. With a population of approximately 1.4 billion, there is plenty of untapped demand for Canadian goods—and with the universally positive impact of a "Made in Canada" label, Canadian manufacturers foresee positive growth in taking advantage of this global demand in 2017 and beyond.

If there's one thing that is likely to remain constant in 2017, it's the seemingly unprecedented amount of change we've seen over the last year. So, while it's virtually impossible to predict what is to come, those manufacturers that are nimble enough to adapt swiftly to the changing tides are best positioned to experience success in 2017 and beyond.

Footnotes

1 https://www.thestar.com/business/2016/10/20/bank-of-canada-downgrades-economic-outlook-through-2018.html

2 Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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