The coming recovery will be unlike any in recent memory, thanks to a sobering combination of shell-shocked, debt-ridden consumers, high unemployment, a massive U.S. stimulus package with protectionist implications, and a surging loonie.
“Historical comparisons won’t tell you anything that will be of any use this time around, because this situation is so different,” says Kul Bhatia, an economics professor at the University of Western Ontario (UWO) in London. Benjamin Tal, Toronto-based senior economist at CIBC, says this recovery is unlike previous ones because it’s led by government, not consumers, and because “Obama’s stimulus package is not Canada-friendly. It will mostly be spent on education and health care, which we don’t trade much in. We won’t benefit from exporting to the U.S. to the same extent we used to during a consumer-led recovery.”
Many economists are calling this a jobless recovery because unemployment is still climbing, to 8.6% in Canada and 10.2% in the U.S. in October. And, although most people still have jobs, they’re saving more and slashing debt, leaving less for discretionary purchases. Add it up, and you have a recipe for a weaker than normal recovery.
Still, there are bright spots. The tech sector is poised for a strong rebound as businesses seek ways to boost efficiency from shrunken workforces. That will generate demand for time-saving solutions of the sort offered by Toronto-based 2ndSite Inc., whose FreshBooks application allows companies to send and manage invoices online.
“One of the best means to enhance productivity is technology,” says Bob Gorman, chief portfolio strategist at Toronto-based TD Financial Group. “Corporations will have the means and the motivation to invest in technology.”
Gorman forecasts that IT spending in Canada will expand by about 7% in 2010 — twice the nominal growth in GDP. He says one factor driving this is the launch of Microsoft Windows 7, which is accelerating the office-technology upgrade cycle. That’s good news for SMEs that produce Windows-compatible software and peripherals, such as networking services, data-management tools and antivirus programs.
Meanwhile, Ottawa’s stimulus program is creating opportunities, directly in construction projects and indirectly in supplying products and services to firms that land government contracts. (See “Your piece of the stimulus pie” on page 39.) And China’s robust stimulus package — equalling 7% of its GDP, versus 2% in Canada — promises to boost demand for our exports, especially commodities.
Stewart Thornhill, executive director of UWO’s Pierre L. Morrissette Institute for Entrepreneurship, says savvy entrepreneurs should consider the burgeoning cleantech category. “Renewable energy is an unstoppable trend,” he says. “There’s demand for it, it makes governments happy and the net value is positive. It should be a no-brainer.”
The slump caused a sharp but brief slowdown in cleantech. Venture capitalists worldwide invested US$3.8 billion in the sector in the first three quarters of 2009, a 44% drop from a year earlier, estimates Cleantech Group LLC, a San Francisco-based network of cleantech firms and investors. Yet the long-term trend is extremely bullish, with investment having quadrupled from 2005 to 2008. And investment is recovering fast, from a trough of US$1 billion in the first quarter of 2009 to US$1.6 billion in the third quarter.
SMEs are driving much of cleantech’s growth in Canada, in areas such as waste handling, power generation, energy infrastructure and process efficiency. Toronto-based The Altech Group, for example, designs and builds air-pollution control and wastewater-treatment systems, while Oakville, Ont.-based Fifth Light Technology Ltd. develops automated lighting control and management systems to help reduce energy costs.
Tal points to another sector ripe for rebound: the oil industry. That’s in part because energy demand swings disproportionately with the economy. And, says Tal, energy producers are well positioned because demand from around the world — not just from the lagging U.S. — drives prices.
“Western Canada will again outperform the rest of the country because of energy and other commodities,” says Tal. Given the massive size of the West’s natural-resources sector, this bounce back promises to boost employment across the country and fuel opportunities in an array of other sectors.