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Public sector investments to underpin Quebec's expansion

Public sector investments to underpin Quebec's expansion

Capital spending, led by public sector mega-projects, will pace the Quebec economy this year, according to Scotia Economics' latest Provincial Trends report.

"Public non-residential construction spending is expected to be the leading contributor to growth this year, with a number of hydroelectric projects in the north, and hospital expansions in Montreal," says Adrienne Warren, Senior Economist, Scotiabank. "Private sector investment plans are also positive, mainly coming from the energy and metal & mineral sectors."

Quebec's large manufacturing sector will continue to weigh on overall economic prospects in 2007, as ongoing competitive issues and a slowing U.S. economy hold GDP growth below two per cent. Still, the economists anticipate better prospects for some manufacturers.

"Quebec's aerospace industry should benefit from a pick up in business activity," adds Ms. Warren. "In addition, household spending will be supported by solid income growth in 2007, benefiting from a lower provincial income tax burden."

For the third year in a row, Canada is expected to post slower output growth. Despite the continuing solid gains in the country's resource-rich regions, manufacturing activity remains under pressure from non-stop foreign competition, rising input costs and a strong Canadian dollar. Meanwhile, deteriorating affordability, largely due to higher prices, is expected to put a chill into the housing market.

Helping to pick up the slack, capital spending will provide solid support. Not restricted to energy- and mining-rich provinces, such as Alberta's oil sands, Saskatchewan's uranium mines or Newfoundland & Labrador's nickel mines and offshore oilfields, non-residential construction will remain a key source of growth in such areas as public infrastructure, sea and airport expansions and commercial building developments, just to name a few. The spillover effect of construction activity should also benefit other sectors. Services should remain robust, providing solid underlying support to output growth, as well as employment opportunities.

From a regional perspective, growth in the Western and Atlantic regions should outpace the national average in 2007, while Central Canada lags behind. Newfoundland & Labrador is expected to best the other provinces as its mining sector recovers. A slowdown in non-residential construction will moderate growth in Alberta and B.C., although the two provinces should remain at the top of the pack. Ontario and Quebec will likely continue to face weakness in manufacturing amid industry restructuring.

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

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