Our comprehensive assessment of Canada's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Canada, as well as the latest industry developments that could impact Canada's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Canada before your competitors.
Canada Country Risk
Economic growth in Canada will gradually accelerate over the next few years, helped by a continued expansion in private consumption and a return to positive growth in fixed investment. Our growth outlook, however, remains below consensus expectations, our reflecting concerns about high household leverage, declining commodity prices, and recent weakness in US economic data .
Exchange rate depreciation and stronger US demand will see Canada's trade in goods balance move from deficit into surplus by 2016, which will continue to narrow the current account deficit over the coming years. Despite recent depreciation, we believe that the Canadian dollar remains fundamentally overvalued, and continued weakness in 2014 will help to revive manufactured goods exports to a strengthening US economy.
Monetary policy will...
Canada Industry Coverage (19)
BMI View: Â After last season's bumper crop, heightened by logistics problems, grain stocks remain elevated which will result in a fall in production in 2014/15. The country's poultry industry is well placed to post strong growth in 201 3 /1 4 and beyond, while we believe that the Canadian beef and pork industries will gain the most from having signedÂ the EU-Canada Free Trade Agreement in October 2013.Â The dairy management system, however, could be under pressure.
|Agribusiness Market Value|
|BMI Market Value By Commodity (2010-2018)|
While our headline growth forecast for 2014 has been revised up slightly to 3.3%, the bigger revisions come in the balance between segments, with an upward revision for light truck sales and downward for passenger car sales. Our view that light truck sales will outperform is also playing out, although outpacing our initial expectations with 5M14 segment sales up 7.9% year-on-year (y-o-y).
A key driver of truck sales is the housing market, which is a key indicator of demand in this segment. Our Infrastructure team believes that while losing steam, the housing market will still contribute to a rebound in the residential construction sector in 2014 - a major source of light truck demand. We now expect light truck sales to grow 9.0% in 2014, up from our previous forecast of 3.8%. This will see the segment reach the milestone of 1mn units.
In contrast, the passenger car segment is in decline, falling 1.7% y-o-y in May. This...
Defence & Security
Canada Defence & Security
Reports during Q314 mooted the possibility that Canada may choose to reduce its defence spending in the coming years. Although no decision has yet been taken by the Canadian government to this end, any reduction in defence spending could buck the recent trend. Canadian defence spending has been steadily increasing as the country has sought to address concerns over maritime sovereignty and the protection of natural resources.
We have given Canada an overall security risk rating of 95 for Q414. The country has scored an average overall security risk rating of 91 for the period January 2007 until Q414. We believe that Canada has a low risk of becoming involved in a major interstate conflict. We also believe that Canada has a low susceptibility to a major terrorist attack or serious criminal activity.
A number of important procurement developments have occurred during Q314. For example, the Royal Canadian Navy has...
Food & Drink
Canada Food & Drink
BMI View : The most important challenge for private consumption growth in Canada over the next two to three years is the daunting level of private debt that has continued to build up in the past five years . We therefore do not expect major growth in the value of Canada's food and drink markets over the short term, partly on account of their maturity and partly due to the expectations that Canadian households will continue to face deleveraging, which is likely to hold back discretionary spending. Â However, opportunities remain manifested by trends such as increased health consciousness and the receptiveness of...
Canada Freight Transport
Economic growth in Canada will continue to accelerate in the coming years, having come in above our expectations in 2013, which is good news for the country's freight industry. The economy posted 2.0% real GDP growth last year, exceeding our 1.7% estimate. This was partly thanks to a stronger net export contribution, as well as continued growth in household consumption. Annualised real GDP growth rose to 2.9% quarter-on-quarter (q-o-q) seasonally adjusted in Q413, an acceleration from the 2.7% growth rate recorded in Q3. Household consumption contributed 1.7 percentage points (pp) to the headline growth figure in Q4, bringing the full-year contribution to 1.3pp. Net exports added 0.2pp, with a full-year contribution of 0.3pp. We expect this trend to remain in place, with the net export contribution, set to increase to 0.7pp this year, while household consumption will contribute a somewhat lower 1.1pp to growth this year.
Exports of goods and...
Canada Information Technology
BMI View: Â The maturity of the Canadian IT market means that growth rates will significantly underperform emerging markets, but in terms of spending per capita Canada will continue to be one of the most lucrative markets globally. Â WeÂ expect Canada's IT market to record growth of 3.2% in 2014, and forecast a CAGR of 4.1% 2014-2018. Premium consumer hardware will remain a growth area, but over the medium term the areas we identify for outperformance include enterprise adoption of cloud computing, real-time software and services and big data analytics. There is however downside to this outlook, with confidence in cloud - based solutions undermined by revelations...
BMI View: Â The Canadian construction sector continues to suffer from limited growth, leading to a downward revision of our expected real growth to 1.7% in 2014. Â This is caused by the continuing weakness of the residential sector , counteracting stable growth in infrastructure. We further expect a positive impact of the CAD53bn New Building Canada Plan for the latter by as early as 2015 , and remain hopeful for the residential sector to exceed our expectations based on favourableÂ mortgage value, home prices and sales data.
BMI View: Â Key trends are emerging with the publication of updated results from leading players in the Canadian insurance sectors, with many companies reporting only limited growth in this already very well established market. Indeed some areas may see declines in 2014 and 2015, though we are forecasting overall growth by 2018 thanks to consolidation of costs and increased efficiencies which will boost profitability.
Growth is expected to be subdued for most of the non-life companies in Canada, though this less than positive outlook is easily offset by the disciplined nature of the major players in terms of the risk they underwrite and the strength of pricing power in most lines. Some areas face particular challenges due to a substantial rise in claims, such as the auto insurance sub-sector in Ontario and we expect to see only pedestrian growth in premiums during the...
Canada Medical Devices
Espicom Industry View : Canada has a sophisticated and well established medical device market which ranks ninth in the world in terms of value. The market is e xpected to grow at a CAGR of 4.0 % over the 2013-2018 period. This steady growth should see the balance of trade deficit widen owing to Canada's reliance upon imports.
Headline Industry Forecasts
Canada's medical device market ranks as the ninth largest in the world. In 2013, the medical device market was estimated at US$6.8bn, equal to US$195 per capita. The market is projected to increase at a CAGR...
BMI View: Canada's economic exposure to both the US and Mexico will enable output growth in its metals industry to 2018, particularly as the majority of Canadian metal production is exported . Increasing manufacturing and industrial activity in both countries should help drive demand for metal inputs. Moreover , a weaker Canadian dollar against the US dollar should provide upside for Canadian metals exporters.
Our constructive outlook towards economic growth in the US and Mexico, combined with view that the Canadian dollar (CAD) will weaken in the coming quarters, leads us to expect the Canadian metals sector will see expansion to 2018. Indeed, we expect both the US and Mexico will experience positive trends in real GDP growth in the coming years, with...
BMI View: Â Canada 's diversified mineral base and its status as a top destination for mining firms seeking to raise funds on capital markets will enable it to remain a Â major player in the global mining industry . Indeed, the country will remain a top-ten global producer of zinc, lead, iron ore, nickel, copper, gold, silver, uranium and Â potash throughout our forecast period.
Canada's strengths as a mining destination will persist in the coming...
Oil & Gas
Canada Oil & Gas
BMI View: Â The outlook for Canada's oil and gas industry is still a positive one, though its upstream potential needs more support from the community and the government for infrastructure development. Â Indeed, challenging project economics could slow the growth of oil-sands driven production, weighing on total hydrocarbon output. That said, while this acts as a significant downside risk, we also note risks to the upside as well, with potential for exploration in the country's offshore acreage and unconventional resources to unearth more oil and gas reserves to support the country's long-term growth prospects . Â
The main trends and...
BMI View: Chemicals, plastics and rubber manufacturing sales experienced a sharp downturn following the 2008 financial crisis, a situation Canada shared with the global market. In following years, the industry has staged a gradual, if unspectacular, recovery. By 2013, the industry was back to the level of sales seen before the crisis due primarily to growth in exports to the US, Canada's main petrochemicals export market .
In 2013, plastic manufacturing sales made a partial recovery from the temporary slump in Q113 when output was undermined by stoppages and moderating market activity. BMI estimates that the overall chemical capacity utilisation rate was around 81% in 2013, two percentage points (pp) higher than the previous year. However, plastics and rubber rates were each 1pp lower at around 76% and 82%, respectively. Chemicals sales trends...
Pharmaceuticals & Healthcare
Canada Pharmaceuticals & Healthcare
BMI View: Â Canada Â will continue to attract pharmaceutical companies to lau n ch innovative medicines due to the hospitable business environment, improving healthcare coverage and broader drug reimbursement lists. Â The regulatory authority also encourages pharmaceutical companies to invest in research and development. However, cost containment policies in the public healthcare sector will continue to put pressure on Canada's medicine prices.
Headline Expenditure Projections
Pharmaceuticals: CAD25.6bn (USD24....
BMI View : Â Although e conomic growth in Canada will gradually accelerate over the next few years , helped by a continued expansion in private consumption and a return to posi tive growth in fixed investment, according to our country risk analysts the Â growth outlook for the country , remains b elow consensus expectations, reflecting BM I's concerns about high household leverage, declining commodity prices, and recent weakness in US economic data. With power demand highly correlated to economic activities...
BMI View: We have maintained our forecasts for Canada's non-hydro renewables industry this quarter as our fundamental assumptions of the market remain in place. The wealth of natural potential Canada has to generate renewable-sourced electricity generation is vast; and we have seen developments across the renewable energy segments, including marine, solar, wind and biomass. However, the lack of a national policy framework or subsidy scheme for renewables is likely to hinder the industry reaching its full potential.
Although coal and hydropower remain fundamental sources of power for Canada, the Canadian government aim to incorporate greater levels of renewables into the energy mix in order to reduce carbon emissions (reducing greenhouse gas emissions by 17% by 2020, from 2005 levels).
Economic growth in Canada will gradually accelerate over the next few years, helped by a continued expansion in private consumption and a return to positive growth in fixed investment. Our growth outlook, however, remains below consensus expectations, reflecting concerns about high household leverage, declining commodity prices and recent weakness in US economic data.
We forecast 2.1% real GDP growth in 2014 and 2.3% growth in 2015. As we have previously noted, our stronger growth forecasts over the next few years by no means represent a firmly optimistic outlook on the economy, as we remain below consensus. Indeed, a recent monthly Bloomberg survey shows consensus expectations of 2.2% and 2.5% in 2014 and 2015 respectively, with this year's reading being a revision from 2.3% previously, suggesting that consensus is slowly converging with our own projection of 2.1% growth for this year.
In 2014, we have pencilled in a...
BMI View: Â Perhaps inevitably, no new significant players entered the Canadian mobile market as a result of the auction of 700MHz spectrum in early 2014. The three incumbent national players took the majority of the spectrum, with cable-focused Rogers laying claim to the most valuable properties in the hope of adding lustre to its converged services portfolio. Meanwhile, the government blocked the sale of spectrum , owned by defunct NextWave , to a Bell - Telus joint venture and reinforced its commitment to nurturing competition by blocking Telus' bid to acquire struggling new entrant Mobilicity ...