Tableau de bord, région métropolitaine de Montréal = Trend chart, Greater Montreal region, 1 mars 2002, Anglais

[" TRE GRE/ «HART LITAN REGION QUARTERLY PUBLICATION OF STATISTICAL ANALYSIS OF THE BOARD OF TRADE OF METROPOLITAN MONTREAL PRODUCED IN PARTNERSHIP WITH CANADA ECONOMIC DEVELOPMENT VOLUME 4, NO 3, MARCH 2002 According to the leading economic indicators, Montreal is poised to resume its economic growth.Indeed, it seems that the U.S.recession and the events of September 11 did not have as much impact on the economy as numerous experts had expected.Despite a slowdown in tourism and exports, several factors remain positive: consumption is holding steady as growing retail sales attest, the housing market is more vibrant than ever and manufacturing jobs increased in January.Moreover, the latest figures on the U.S.situation point to an imminent recovery by our main trading partner.The impending turnaround of the U.S.economy, combined with positive economic factors and the current low interest rates, may signal, if employment remains sound, a faster recovery than anticipated for the Montreal economy.POSITIVE POINTS ¦\tThe labour market is holding its own for the time being ¦\tThe housing sector in Montreal is more active than ever ¦\tBusiness costs in Montreal are lower than anywhere else ¦\tMontreal is still considered a technology hub in North America INDICATORS TO WATCH ¦\tExports should pick up mid-year ¦\tE-commerce is less popular in Quebec than elsewhere in Canada ¦\tMontreal is the poverty capital of Canada THE CED REPORT Aerospace subcontracting is a challenge for the industry in Montreal.HIGHLIGHTS MONTREAL\u2019S ECONOMIC DOWNTURN WILL BE SHORT LIVED l+l Développement\tCanada Economic économique Canada Development Canada 2 North Belt Laval South Belt Montreal MAP op THE METROPOLITAN AREA Montreal, Laval and North and South Belts Population: 3.5 million 55% of Quebec\u2019s GDP Corporate tax: 75% of Quebec\u2019s total contribution 1.7 million jobs THE FOLLOWING STATISTICS cover the census metropolitan area (CMA).Where unavailable, the MMC territory or the City of Montreal were included.These are the latest statistics available at the time of printing Published and distributed free of charge by LEADERSHIP Montreal the Board of Trade of Metropolitan Montreal\u2019s monthly journal THE TREND CHART for Greater Montreal is open to the participation of any organization dedicated to the progress of the metropolitan region.Reproduction of this document, in whole or in part, is authorized with credit to the Board of Trade of Metropolitan Montreal.Publication director: Eric Veronneau, economist Telephone: (514) 871-4000, ext.4052 Fax: (514) 871-1255 E-mail: everonneau@ccmm.qc.ca In collaboration with: Francis Letendre Available on the Board of Trade\u2019s Web site at: www.btmm.qc.ca/presse/tdb TABLE OF CONTENTS page 1 ¦AhéiéASé 3.\tTRENDS AND OVERVIEW\t4 \u2022\tUnited States\t4 \u2022\tCanada\t4 \u2022\tQuebec\t4 4.\tECONOMIC CONDITIONS\t5 \u2022\tGross domestic product\t5 \u2022\tConsumption\t6 \u2022\tLabour market\t6 \u2022\tHousing\t7 \u2022\tForeign trade\t8 \u2022\tFinancial markets\t8 5.\tECONOMIC SECTORS\t9 Transportation \u2022\tAir traffic\t9 \u2022\tPort traffic\t10 High Technologiy\t10 Tourism\t11 E-commerce\t12 6.\tQUALITY OF LIFE\t13 Business costs\t13 Poverty\t14 7.\tCANADA ECONOMIC DEVELOPMENT\t15 Aerospace subcontracting Economic Development By uniting strength Canada Economic of Quebec comm We support their s, the community moves forward.Development promotes the efforts unities dedicated to going farther, business projects and their partnerships.Our goakTo support community strength.Prospering in Harmony Community Strength Canada Economic Développement 1^1 Development\téconomique Canada Canada w éi S Chambre de commerce 2^ fl du Montréal métropolitain Board of Trade f of Metropolitan Montreal 5 Place Ville Marie, plaza level, suite 12500, Montreal (Quebec) H3B 4Y2 Telephone: (514) 871-4000 Fax: (514) 871-1255 E-mail: info@ccmm.qc.ca TRENDS AND OVERVIEW UNITED STATES According to recent indicators, it looks like the U.S.economy has stopped its slide and recovery could well be just around the corner.After slipping 1.1% in September, 0.7% in October and 0.4% in November, industrial output shrank a mere 0.1% in December 2001.This steady tapering off of negative growth typically signals the end of a recession.The depletion of excess inventory partially explains this trend.Continuing an eight-month consecutive decrease, inventories shrank 1% in November, compared with 1.6% in October.According to the most recent survey conducted by the U.S.National Association of Purchasing Management, the ISM index rose 1.8% in January to 49.9.Manufacturing production is considered to be growing when this index goes over the 50 mark.With respect to consumption, the decrease in retail sales has been stabilizing at the same pace as the manufacturing sector, shrinking only 0.1% in November after dropping 3% in October.Moreover, it looks like consumer confidence is firming up: the Conference Board\u2019s Consumer Confidence Index inched up 3 points in January to 97.3, its second consecutive increase.Even the leading U.S.indicator, which predicts the GDP three to six months in advance, progressed 1.2% in January, its third increase in as many months.For the time being, the only fly in the ointment is on the employment front, where the jobless rate remains high.However, January did record a decrease of 0.3%, to 5.6%.The fact that inventory surpluses have almost been cleared, industrial production is showing signs of turning around and consumer confidence remains steady leads us to believe that employment will also soon rebound.In short, all these indicators are pointing to an imminent turnaround for the U.S., probably in the second quarter.CANADA The second half of 2001 showed us to what extent the Canadian economy depends on the economic situation of our principal trading partner, the United States.Consequently, with 85% of our country\u2019s exports headed south, accounting for 35% of our GDP, the economic downturn in the U.S.\u2014exacerbated by the events of September 11\u2014had a major negative impact on our exports, and slowed production growth.For the first time since 1992, GDP shrank 0.8% (on an annual basis) in the third quarter, owing mainly to a substantial reduction in inventories.However, thanks to exceptional easing of monetary policy to stimulate consumption, retail sales and residential construction became the engine of the Canadian economy towards the end of the year.In light of the statistics released in the fourth quarter on employment and manufacturing output, as well as certain U.S.indices, several analysts expect the labour market to contract at the beginning of the year, postponing the recovery to the second half of 2002.However, the prognosis is more favourable than anticipated, since if we combine strong job creation (+76,000), the turnaround in manufacturing shipments, the rise in the Canadian composite index, steady retail sales and the numerous signs of a turnaround in the U.S., we can now expect the Canadian economy to rebound earlier than expected, more specificallly in the first half of the year.(See \u201cGross Domestic Product\u201d, p.5) QUEBEC According to the Institut de la statistique du Québec, the Quebec economy fared better in Q3 2001 than the country as a whole, posting a GDP growth of 1.4% (annualized rate) between July and September, against a 0.8% decrease in the country\u2019s GDP in the same period (Stats Canada figures).Notwithstanding the negative impact of the U.S.downturn, the Bank of Canada\u2019s unprecedented reduction in interest rates combined with the tax relief announced by Quebec last summer sufficiently stimulated consumption and housing starts to sustain the Quebec economy.New construction was particularly robust in 2001, especially in Greater Montreal, fuelled by historically low mortgage rates, strong demand in the resale market and a shortage of rental housing.(See \u201cHousing,\u201d p.7) Quebec fared reasonably well in the area of employment, creating - despite a loss of 10,500 jobs in December - a total of 36,800 jobs in 2001, with 15,800 in the Montreal region.And according to the latest statistics, which show a gain of 27,000 jobs in January alone, employment may very well stay the course in the next few months.The impending U.S.recovery in early 2002 should allow us to increase our exports and re-ignite manufacturing output in the second half of the year.Moreover, if the job market does not weaken too much, new decreases in interest rates announced by the central bank, combined with additional federal and provincial spending, should keep consumption and housing starts on track over the next few months. 5 ECONOMIC CONDITIONS THE GROSS DOMESTIC PRODUCT : CANADA\u2019S ECONOMY ON THE RIGHT TRACK Contrary to all expectations, after posting negative growth (-0.3%) in the third quarter of 2001, Canada\u2019s GDP seems to have rebounded in the fourth quarter.In fact the latest figures released by Statistics Canada indicate a growth in GDP of 0.3% in October and 0.2% in November, with the economy making up much of the ground lost in September (-0.8%).Between November 2000 and November 2001, the GDP at factor cost fell 0.3%.Canada's GDP The November increase was nevertheless due primarily to the increase in retail sales (+2.1%) fuelled largely by a jump in new car sales (7.3%).Wholesale trade also increased by 0.5% as a result of brisk computer sales, which rose 5.5%.Low mortgage rates led to the fifth consecutive increase in residential construction, which gained 0.9% in November.Manufacturing production, on the other hand, remained relatively stable, with a decline of 0.1% over October.Weaker demand for electronic and electric equipment put the brakes on manufacturing production, since the manufacture of computers and electronic products fell by 2.2% in November and production of electric equipment, by 4.3%.On the other hand, the manufacturing sector benefited greatly from the excellent performance of the transportation equipment, food, beverage, and tobacco industries.In billions ofSfrom 1997 All industries ¦WUHMMHMMHI 1999\t2000 2001 Since the end of 2001, the good news has kept right on coming,\tSource: Statistics Canada including a 0.4% increase in the Canadian composite index in December, an increase in manufacturing shipments, the announcement of 76,000 new jobs in January (25,000 in the manufacturing sector), and many signs of recovery in the U.S.economy.Until recently, the majority of analysts were not expecting a Canadian recovery before the second half of the year.But in the light of the latest results - especially those concerning employment - it is now conceivable that the economy will begin to turn around more quickly than expected, or in the first six months of 2002.We will have to keep a very close eye on Canada\u2019s employment figures and the progress of U.S.indicators. 6 CONSUMPTION CONSUMER CONFIDENCE UNSHAKEN Following the decline in retail sales last September (-2.1%), analysts feared the worst as they watched this pillar of economic growth begin to crumble.Fortunately, their fears were not realized; in fact, the latest figures released by Statistics Canada indicate that, in Canada, retail sales actually increased by 2.4% in October and by 2.1% in November and, in Quebec, by 1.4% and 0.7% respectively.StatsCan was quick to point out, however, that the November upturn was due primarily to a jump in automobile sales (+7.3%), fuelled by very advantageous financing plans.If automobiles are left out of the picture, Canadian retail sales actually fell by 0.1%.Notably, between November 2000 and November 2001, retail sales grew by 4.9% in Canada and by 4.5% in Quebec.Quebec retail sales (seasonally adjusted) annual % Annual variation Of course, this growth in retail sales may seem contradictory during a slow down, but the steep drop in interest rates combined with the decline in oil prices and last summer\u2019s tax cuts have left more money in the pockets of consumers and encouraged them to speed up their purchases of durable goods.The recovery of the U.S.economy forecast for next spring bodes well for retail sales for the next year.On the other hand, Source: Statistics Canada we mustn\u2019t take too much for granted, since decreased employment could undermine consumer confidence and delay that recovery.THE LABOUR MARKET THE LABOUR MARKET SHOWS NEW SIGNS OF LIFE In December, Statistics Canada reported a loss of 11,000 jobs in Quebec and a 9.7% rise in unemployment, prompting many analysts to conclude that the job market was beginning to react to the current economic slowdown and to predict a decline in employment in the first two or three months of the year.But the latest job market statistics indicate that, in January alone, 27,000 new jobs were created in Quebec.As a result, employment grew by 1.6% over January 2001, and unemployment dropped by 0.8 of a point, to 9.1%.Moreover, according to the federal agency, this result was due largely to the strength of Montreal\u2019s job market.Quebec employment ,ooo\t(seasonally adjusted) (Var.%) yn August September October November December January Source: Statistics Canada ¦ Monthly variation 7 The other good news is that, after suffering losses in December, the manufacturing sector also made progress, hinting that Quebec\u2019s manufacturing production could turn around more quickly than expected.It is too early to say for sure, of course, especially since the help-wanted index dropped another 5.4% in December, levelling off at 122, or 26.1% lower than it was twelve months earlier.Given the numerous signs of an economic recovery in the United States and unwavering consumer confidence, it is now possible to hope that the labour market will stay the course during the first quarter - and even start to grow in the second.Stay tuned! HOUSING NO RECESSION FOR HOUSING The housing sector does not seem at all affected by the economic slowdown.With 13,303 new starts - a 4% increase over last year - 2001 was Montreal\u2019s best year since 1993.In Greater Montreal, housing starts jumped 125% in December alone.According to the Canada Mortgage and Housing Corporation (CMHC), had December not been as robust, residential construction would have ended the year 3% down from 2000.Vaudreuil-Soulange led the way with a 22% increase, followed by the South Shore (8%) and the Laval/North belt (7%).For Quebec overall, housing starts advanced 10%, fuelled in large part by construction in Montreal.This solid performance in residential construction is partly due to saturated demand in the resale market, fuelled by historically low interest rates.The growing shortage in housing inventory is prompting potential buyers to consider building a new home.In Montreal, housing resales climbed 49% in the last month of the year.Low vacancy rates also contributed to the increase in construction last year.The most recent statistics on building permits, published by Statistics Canada in December, place the value of building permits issued at $39.9 billion, only a notch below the record set in 1989.Consequently, if the employment situation does not deteriorate too much, odds are very good that housing starts will remain strong in the first few months of the year.Montreal housing starts (deseasonalized data as a moving six-month average) thousands of units 15 14.5 10 ¦illlilllllluuiiaiuiiuiuiHiuui I SSSSS^SSSSSSSSSSS:: s s s s 8iiiiiiii§§§§i§ ^\u2022«-^*-»-^eMCMoipgcMojc>ge>4C'gcMCM Source : Statistics Canada 8 FOREIGN TRADE EXPORTS REBOUND Two thousand one was a difficult year for Quebec exports, which dropped 8.4% between November 2000 and November 2001.Exports for the country as a whole did not fare any better, sliding 9.3% for the same period.However, the most recent statistics published by the Institut de la statistique du Québec (ISQ) show a gain of 0.8% in November and 11.4% in October, thus putting an end to six consecutives decreases.The upsurge is in large part attributable to aircraft sales, which rose 50% during the last eleven months of the year to reach a record $929.5 billion in October and $933.9 billion in November.According to the ISQ, flight prohibitions imposed on the airports in September forced companies to defer some of their shipments to subsequent months.Three product groups were especially weak this year: communication equipment and material (-50%), automobiles (-25.5%) and office machines and equipment (-13.3%).S'000,000 of 1997 80,000 44,000 Quebec's international exports, (deseasonalized data, monthly adjusted) Jt\t/J\\\t\tJl \t\t¦ || y 1 r\"\t % 18 I- o -6 + -12 18 1999 | 2000 2001 | Export Q Monthly values\tvariation Source: Institut de la statistique du Québec After recording a 9.8% increase in October, exports to the U.S.slipped 6.7% in November, for an overall decrease of 4.5% since the beginning of 2000.In contrast, exports to Asia climbed nearly 20% this past year.International imports first rose 16.2% in October, only to drop 10.1% in November.Since the beginning of the year, total volume decreased 4% over the same year-earlier period.Consequently, the Quebec trade balance remained slightly positive, at $546 million.Given that 85% of Quebec exports head south, their growth will be directly tied to the U.S.economic recovery, which several indices show will begin in the first half of 2002.Indeed, the leading U.S.index has been advancing for a few months now, while the U.S.index of manufacturing activity (ISM) has almost reached 501.As soon as domestic demand in the U.S.rebounds - probably towards the end of the first half of the year - demand for Quebec imports will firm up.1 An index over 50 indicates growth in manufacturing output.FINANCIAL MARKETS INFLATION RATE According to Statistics Canada, the annual inflation rate was 0.7% in December.This low level was primarily due to a drop in energy prices, especially gasoline.Excluding energy, the Consumer Price Index (CPI) rose 2%.Factors contributing to the increase included higher prices for cigarettes, rent, restaurant food and beef.Despite signs of recovery and low interest rates, there will be no inflationary pressure before the economy recovery is well underway.INTEREST RATES Since January 2001, the Bank of Canada has lowered its interest rates by 375 basis points, 200 since September 11, to 2% in January.Given that the Canadian and U.S.slumps are coming to a close, we can expect the easing of monetary policy to end soon.As such, when the central bank meets on March 5, it will probably reduce interest rates for the last time, dropping the overnight rate by 0.25%. 9 EXCHANGE RATE The Canadian dollar took a beating in 2001, ending the year 6.3% lower than in 2000.And it didn\u2019t fare any better in early 2002, with the exchange rate dropping to a historically low US61.75 cents on January 21.Although our dollar has been inching up somewhat with a little help from Finance Minister Paul Martin and the governor of the Bank of Canada, David Dodge, there is little chance that it will go above US64 cents in the first half of the year.However, once the U.S.and Canadian economies reduce their excess production capacity, the price of raw materials and interest rates will go up, which should push the loony above US65 cents.STOCK MARKETS Two thousand one was characterized by a highly volatile, bear market.Despite increasingly positive signs regarding the outlook of the Canadian and U.S.economies, the Enron bankruptcy and disappointing corporate financial results have shaken confidence in the stock markets, a situation that will likely persist for some time.ECONOMIC SECTORS TRANSPORTATION AIR TRAFFIC PASSENGER TRAFFIC HITS THE BRAKES IN MONTREAL The slowdown in the air transport industry that began in mid 2001, and which was greatly aggravated by the September 11 jetliner attacks, had a major impact on passenger traffic at Montreal airports, and there is no reason to think that will change any time soon.In fact the most recent statistics released by Aéroports de Montréal reveal that in November 2001 - more than two months after the terrorist attacks - passenger traffic was still 22.5% lower than in November 2000.Cross-border traffic was the hardest hit, with the number of passengers between September and November 2001 down 33% from the corresponding period the previous year.Passenger traffic on domestic and international flights also declined significantly during that period, at 21.6% and 9.5% respectively.All in all, the total number of passengers at Montreal airports dropped by about 4% in 2001 from 2000.Montreal is not alone, however, since the International Civil Aviation Organization (ICAO) reports that global passenger travel dropped 5% in 2001 after jumping 8% the previous year.According to Aéroports de Montréal, the downturn in the airline industry resulted in a 25% drop in customer traffic, which will have a major impact on both its current income and its 2002 budget.As a result, ADM announced last fall that it would be carrying out an in-depth restructuring, leading to the elimination of 60 positions, or 10% of its workforce.The decline in customer traffic has also forced ADM to review its assumptions about the Total passengers at Montreal airports 1,025,000 975,000 925.000 875.000 825.000 775.000 725.000 675.000 625.000 575.000 Source: Aéroports de Montréal demand to be met at Dorval and thus revamp phase 2 of its expansion project, scheduled for 2003 - 2005.When will passenger traffic return to normal in Montreal?James C.Cherry, president and CEO of Aéroports de Montréal, explains that, \u201c.after such a steep decline in industry activity, it could take several years before traffic returns to comparable levels.\u201d Even if there is an economic recovery in the second half of 2002, the crisis now facing the airline industry could affect passenger traffic for some time to come. 10 PORT TRAFFIC A DIFFICULT YEAR FOR THE PORT OF MONTREAL The year 2001 was a difficult one for the Port of Montreal.As a result of the global economic slowdown, overall traffic declined 1.6 million tons, or 7.8%, from 2000, for a total of 19.1 million.Container traffic, which has grown at an average annual rate of about 7% over the past five years, setting new records for eight consecutive years, totalled 8.6 million in 2001, down 5.3% (-500,000 tons) from the previous year.Statistics published by Piers Data nevertheless indicate that container traffic suffered a comparable decline at all Eastern Seaboard ports.As predicted in December 2001, the economic slowdown in our neighbour to the south significantly reduced the demand for steel products, destined largely for the automobile industry.As a result, non-containerized cargo traffic plummeted from 816,915 tons in 2000 to 421,273 last year, a 48.4% drop.Total traffic at the Port of Montreal (in millions of tons) % 20.7 20.1 19.9 19.2 20.6\t20.7 19.1 1994\t1995\t1996\t1997\t1998\t1999\t2000\t2001 Dry bulk traffic, including grain, sugar, salt, fertilizers, and copper, also fell (by 8.6%) in 2001.Liquid bulk traffic declined by just half that amount, with 4,224,294 tons passing through the port compared with 4,415,393 tons the previous year (a decline of 4.3%.) Despite the slowdown in traffic in 2001, prospects for the Port of Montreal are relatively positive for the coming years.First of all, the port authority carried out its most ambitious capital Source: Port of Montreal program to date, investing $40 million last year to expand and improve port facilities.And secondly, Port of Montreal economists predict that an economic recovery will jumpstart port activities in the second half of 2002.They anticipate that traffic will grow at an average annual rate of 4.5% between 2002-2006, leading to a total volume of 11 million tons in 2006.HIGH TECHNOLOGY DESPITE A CHAOTIC 2001, HIGH-TECH EMPLOYMENT HOLDS ITS OWN Despite the freefall of IT stocks, the tragic events of September 11, and the economic slowdown, Greater Montreal is still holding its own, maintaining its tenth-place position in terms of employment levels in high-tech sectors and fourth place in terms of per capita employment among thirteen North American technology hubs.These are the results of the second annual edition of the Performance Indicators report published by Techno Vision Montreal.Technology employment in North American major metropolitan areas - 2001 Private sector companies with more than 100 employees Dm In 2001, the number of high-tech jobs in Montreal fell by 2.5% (-4,000 jobs), bringing the total to 155,000.In 2000, the Source: E & B Data 11 number of new-economy-related jobs grew by 10.4% (+15,000), for a total of 159,000 jobs.According to Montreal Techno-Vision, however, the diversification of Montreal\u2019s high-tech subsectors tempered the impact of the economic slowdown on high-tech employment in 2001.And high-tech jobs account for 9% of all employment in the Montreal area.In the information technology sector, Montreal is still in ninth place among North American technocities in terms of total jobs and fourth in terms of per capita employment.Despite the loss of 4,000 jobs (-4%) this year, the IT sector employs a total of 110,000 people, or 71% of all high-tech employees in the Montreal area.According to Montreal TechnoVision, the decrease in employment in the telecommunications equipment and electronic components industries was offset by new jobs in the applications and specialized computers industries.In aerospace, Montreal still ranks fifth in North America, behind Los Angeles, Seattle, Washington D.C., and New York in terms of total jobs and second in terms of per capita employment.In April 2001, when this data was collected, jobs in this sector had stabilized at 31,000.But after September 11, the aerospace industry was forced to lay off many employees, leading us to believe that the total number of jobs could be lower than that indicated by Montreal TechnoVision.Employment in the biopharmaceutical industry remained unchanged between 2000 and 2001, levelling off at 14,000.This was because job cutting by Montreal multinationals (-2.6%) was offset by increased hiring by small biotech firms (+11.5%).Although Montreal lost ground in comparison with Toronto (7th place), Boston (6th place), and Washington (9th place), it still ranks eighth among North American technology hubs in terms of total employment and third on a per capita basis.Despite some high-tech job losses in Montreal in 2001, employment in this industry is still up 7% over 1999; in comparison, total jobs in Greater Montreal grew by just 3%.TOURISM MONTREAL\u2019S TOURISM INDUSTRY: LIGHT AT THE END OF THE TUNNEL The last quarter of 2001 was difficult for Montreal\u2019s tourism sector.In addition to being affected by the economic slowdown, which deepened after the third quarter of 2001, the tourism industry was hammered by the events of September 11, which undermined consumer confidence and created a profound mistrust of travel on commercial airlines.Despite a significant drop in tourism activity in Montreal since September 2001, Tourisme Montreal's latest figures on hotel occupancy rates in Greater Montreal indicate an upturn in tourism activity in the metropolitan area.In December 2001, the hotel occupancy rate was 46.89%, down 3% from December 2000 (48.37%); between September and November 2001, however, the occupancy rate was down an average of 12.5% from the same period the previous year.For 2002, the Canadian Tourism Commission (CTC) expects the lower number of international travellers will continue to affect travel suppliers, but this will likely be offset by an increase in the number of domestic travellers.In fact, the CTC believes that, over the short term, the domestic pleasure travel market is the most promising, given consumer safety fears, the weak Canadian dollar, and the new promotional efforts.It nevertheless cautions that the volume of business travel will remain low because of the economic slowdown, the restricted Greater Montreal hotel rates (2000-2001) 87.7\t88.5 83.5 89.9 78.4 61.8 82.7 67.4 48.4 ¦ ; A- M- J- J- A- S- 0- N- D- J- F- M- A- M- J- J- A- S- 0- N- 0-00 00 00 00 00 00 00 00 00 01 01 01 01 01 01 01 01 01 01 01 01 Source: Hotel Association of Greater Montreal capacity of air carriers, higher fares, and the fact that all non-essential business travel will be curtailed.According to the latest market analysis by the CTC, Canada\u2019s tourism industry can look forward to brighter days starting next spring, since reservations are up 2.5% compared with spring 2001.955995 12 E-COMMERCE ON AVERAGE, QUEBECERS MAKE FEWER ON-LINE PURCHASES Despite strong growth, cybershopping in Quebec still proves less popular than in other Canadian provinces.Quebecers are also the most reluctant to use interactive Internet services.According to a Statistics Canada survey of Internet use in the home, between 1999 and 2000, the number of Canadian households making on-line purchases nearly doubled, and the number of orders placed jumped by 275%, totalling approximately $1.1 billion.Sixty percent of these purchases were made on Canadian sites.Despite the significant increase in cybershopping, however, it still represents only 0.15% of the $591 billion in total personal expenditures in Canada.The study shows that in 2000, Quebec households spent an average of $650 on the Internet, compared to $973 in Alberta and $833 in Ontario.The highest level of Internet spending in Canada took place in Ontario, with a total of approximately $529 million in 2000, compared with $160 million in Alberta, $145 million in British Columbia, and $144 million in Quebec (despite a 278% increase between 1999 and 2000).The gap in Internet spending can be explained, in part, by the fact that the connection rate is just 33% in Quebec, compared with 40% in the rest of Canada.Language may also be a factor.In addition, Quebecers are particularly concerned with security and the protection of personal information when making credit card purchases on the Net.Total value of purchases on the Internet \t British Columbia\t\t 14^ Alberta\t Manitoba and Saskatchewan\tmmm gg Ontario Quebec\t \t1AA \t Atlantic Provinces\t68 > \t 100\t200\t300\t400\t500\t600 million $ Source: Statistics Canada This gap is shrinking, however, since, thanks to the Quebec government\u2019s \u201cConnecting Families to the Internet\u201d program, the connection rate increased by 57% in 2000, compared with 36% in 1999, bringing the total number of on-line households to 380,000.If new connections continue to be made at this rate, we can expect the gap with the rest of Canada to shrink from 7% to about 5% in 2002. SPECIFIC ECONOMIC SECTORS BUSINESS COSTS MONTREAL MOST COMPETITIVE IN TERMS OF BUSINESS COSTS According to an international study of business costs carried out by the management consulting firm KPMG, Montreal offers the lowest costs of any city with two million inhabitants or more.With a cost index of 85.3, Greater Montreal beat out Toronto (87.9) and Vancouver (88.2).The most expensive cities are Yokohama, Japan, with a cost index of 125.7 and New York and San José, with 115.5.On average, the operating costs for a company in Montreal are thus 15.7% lower than in a U.S.city.Canada also earned top marks, coming out in first place among industrial nations for the third year in a row, with an index of 85.5 (U.S.= 100), ahead of the United Kingdom (86.9), Italy (88.6), the Netherlands (90.8), France (92.2), and Austria (93.7).This ten-month international study covered 86 cities in nine countries, including 26 major international hubs with two million inhabitants or more, including Montreal.The study analyzed twenty-seven factors with a significant impact on location decisions, such as labour costs, taxes, transportation, energy costs, and facility costs.Nevertheless, according to KPMG, the two most important factors considered by companies seeking to establish or expand their operations are labour costs and taxes.And these, along with construction costs, are lowest in Canada.It should be noted, however, that the strong appreciation of the U.S.dollar against major global currencies enabled Canada and the other G-7 countries to improve their relative position with regard to the United States.The current weakness of the Canadian dollar helps make Canada an attractive investment location for foreign companies seeking to expand.Least expensive international cities (average business costs in major American cities = 100) Montreal (CA) Toronto (CA) Manchester (UK) Vancouver(CA) Birmingham (UK) Turin (IT) West Holland (NL) Vienna (AUS) Atlanta (USA) Phoenix (USA) \t\t\t\t\t\t Source: KPMG The KPMG study was sponsored in part by several Quebec organizations, including Investissement Québec, Montréal International, and the Société de promotion économique du Québec métropolitain. 14 POVERTY MONTREAL: THE POVERTY CAPITAL OF CANADA Despite the economic slowdown experienced by Canada in the past six months, the Montreal economy has grown significantly in recent years and is much stronger than it was ten years ago.Per capita income has increased, and the unemployment rate has dropped.Yet the most recent statistics on poverty, along with observations from players in the field, indicate that a large percentage of those living on the Island of Montreal have not benefited from this improvement.Greater Montreal and, more specifically, the Island of Montreal, is number one in terms of poverty, with the largest number of low-income families in Canada.In fact, as reported by the Canadian Council on Social Development, the proportion of low-income families in Greater Montreal is 22.6%, whereas no other metropolitan area in Canada exceeds 18.7%.On the Island of Montreal alone, this proportion soars to 34%, meaning that more than one out of every three Montrealers lives below the poverty line1.According to the Conseil régional de développement de l\u2019île de Montréal (CRDIM) , in March 2001, one third of all those receiving employment assistance in Quebec were living on the Island of Montreal.Moreover, the proportion of people living on welfare has increased over the past ten years, jumping 16%, from 11.3% in 1990 to 13.1% in 2001.For the province as a whole, this percentage remained stable at 8.9%2.The most worrisome poverty factor is nevertheless the growing trend toward low education levels on the Island of Montreal.According to the Commission scolaire de l\u2019île de Montréal (CSDM), the high school graduation rate was 65.4% in 2000, compared with 67.3% in 1999.As a result, the high school graduation rate is lower in Montreal than in the province as a whole.A low high school graduation rate in an economy where jobs require higher and higher skill levels will necessarily exclude a growing percentage of the population from the labour market.Those excluded from this market because of a lack of education will benefit very little, if at all, from economic growth, which will only widen the poverty gap.In addition, the growing exclusion of part of the population represents an enormous burden for the government, adding pressure to social assistance, healthcare, and civil protection services.However, it is not by injecting more money into social assistance programs that we will resolve this problem, but by promoting and supporting the development of community organizations working to alleviate poverty and by reforming the public education system so that it can adequately prepare young people to meet the challenges awaiting tomorrow\u2019s active society.1\tThe poverty line, or low-income cutoff, is based on the size of the family, the size of the town or city they live in, and the percentage of gross family income devoted to basic expenses, including housing, food, and clothing.In 1996, families devoting 54.7% or more of their gross revenue to basic expenses were considered to be living below the poverty line.2\tFrom a document titled Avis sur la stratégie nationale de lutte contre la pauvreté, Conseil régional de développement de l\u2019île de Montréal. 15 I CANADA ECONOMIC DEVELOPMENT REPORT AEROSPACE SUBCONTRACTING : A CHALLENGE FOR THE INDUSTRY IN MONTREAL - The aerospace industry in the Montreal region encompasses approximately 40,000 jobs spread across 130 businesses and represents more than 50% of Canadian sales.Subcontractors and suppliers account for 107 of these businesses and more than 5,000 workers.CONTEXT With globalization and the opening-up of markets international competition is increasing and the leading players in the aerospace industry must review their business strategies.One of these strategies is to distribute an increasing number of assembly operations throughout the entire length of the supply chain.The upshot is that some of the financial burden and technical risks are to be shouldered by those further down the manufacturing pyramid.Consequently, to obtain the best possible subcontracting chain, the traditional relationship between subcontractors and contract givers is being replaced by partnerships and the creation of closer business relationships.Instead of merely filling orders, the subcontractors become important players in the value chain.Their ability to compete is measured by their key-competencies and the value added they can bring.The quality and the extent of the relationship between the parties become competitive advantages for both of them.The vigorous growth of the aerospace industry in Montreal during the nineties, the markedly cyclical nature of the industry, and today\u2019s unfavourable climate all serve to increase the already substantial pressures experienced by subcontractors.MONTREAL\u2019S ADVANTAGES Montreal has a number of major advantages, particularly in terms of set-up and operational costs, that enable it to face this stiff competition.In a recent international study by KPMG, based on an overall cost index, Montreal came first among all major North American and European cities.Firms in the aerospace sector have access to a qualified and highly specialized labour pool - the result of a broad range of university, college and technical training programs.The creation by the National Research Council of Canada of a new aerospace manufacturing technology centre strengthens Montreal\u2019s position on the world scene even further.The centre\u2019s mission is to help the sector and to introduce state-of-the-art manufacturing methods.Industrial structure / Major \\ / contract \\ / givers \\ /27 360 employees\\ /\t5 entreprises \\ /Equipment Manufactures\\ /\t(Integrators)\t\\ /3 300 employees, 8 establishmentsN Subcontractors 5 100 employees, 107 establishments Source: The Greater Montreal Aerospace Industry Montréal International, 2001 \t Bombardier Aéronautique 14 800 employees*\tThird largest commercial aircraft manufacturer in the world after Boeing and Airbus and Quebec's largest aerospace employer.Pratt & Whitney Canada 5 510 employees*\tWorld-wide orders for low-power turboshafts, turbofans and turboprops.CAE 4 000 employees*\t80% of the world's commercial flight simulator market Bell Helicopter Textron 1 550 employees*\tWorld-wide orders for assembling light and medium-size commercial helicopters.Rolls-Royce 1 500 employees*\tWorld leader in the maintenance and repair of a wide range of engines.(*) The data do not take into consideration recent layoff announcements Source: The Greater Montréal Aerospace Industry, Montréal International, 2001 16 THE CHALLENGE FACING SUBCONTRACTORS There are very few manufacturers of aerospace equipment in Canada.This means that subcontractors that hope to form part of the supply chain face a considerable challenge.Meanwhile, contract givers are increasingly obliged to look outside Canada to find equipment makers.The Aerospace Industries Association of Canada (AIAC) confirms that the drop in Canada\u2019s share in production from 66% in 1995 to 53% in 2000 is a sign that subcontractors are losing their ability to compete.A recent report by Raymond Chabot Grant Thornton (see table opposite) identifies a number of the challenges facing Montreal subcontractors.Besides the need to stave off extremely strong international competition, the size of the Canadian market also means that survival depends on access to international markets.The AIAC points out that Canada exports around 80% of its aerospace products.Price-waterhouseCoopers LLP suggest that, on account of Canada\u2019s commercial aviation market being small and the sharp drop in military spending in Canada on materiel and R&D, there are relatively few partners willing to share the risks involved in developing new aircraft or new aerospace products.Issues facing subcontractors Insufficient managerial capacities in order to be able to assume a partnership role.Significant productivity gap between Canada and other countries.Making know-how and state-of-the-art techniques integral parts of products and production in order to meet the needs of order givers.Limited capacity to develop a continuous watch strategy.Limited financial resources.Source: Vision des entrepreneurs, Raymond Chabot Grant Thornton, July 2001 PROSPECTS Total Canadian sales of aerospace products and Canadian content percent On their own, subcontractors will find it difficult to face these challenges.Last November, the Bureau d\u2019intervention et d\u2019information stratégique (BUS) was set up to promote dialogue and networking among all of the sector\u2019s stakeholders (order givers, subcontractors, governments and university researchers).One of the main goals of the BUS is to conduct projects that are adapted to the industry and facilitate the integration of the subcontractors in the value chain.However, the sector\u2019s future also depends on external factors over which it is much more difficult to have any influence: \u2022\tIncreased demand for regional jets and long-range business aircraft.\u2022\tThe impact of September 11 on tourism and the demand for airplane seats.\u2022\tIncreased activity in the military sector, mostly in the United States but also in Canada.Although it is difficult to quantify these factors at present, each of them will have a different impact on the industry.In spite of today\u2019s unfavourable scenario, mobilizing the sector\u2019s stakeholders seems to hold out some promise in terms of meeting these challenges.% 60 Total Canadian sales in billions of $ (Y2) \u2014\u2022\u2014\tCanadian content percentage (Y1 ) Sources: Industry Canada and Base of Canadian aerospace suppliers - strategy for change, PricewaterhouseCoopers LLP, June 1999.By Sébastien P.Poirier, Canada Economic Development Assisted by: Stéphane Pronovost, Canada Economic Development and Guylaine St-Onge, Bureau d\u2019intervention et d\u2019information stratégique "]