The strong dollar will once again dominate headlines across Canada this year, business and union leaders predict.
"The value of the dollar is going to be a major concern to a lot of companies in several sectors, including manufacturing, forestry, tourism, hospitality, hotel and restaurant," says Canadian Auto Workers president Buzz Hargrove.
While the dollar determines the national agenda, each province and territory will have to grapple with issues of its own.
Hargrove predicts the manufacturing sector will be the hardest hit across Canada - especially in his home province of Ontario.
"It's our major industry," he said in a recent interview. "When it's passive, we all get pneumonia."
Across the country in British Columbia, analysts say the strong loonie will spell more mill closures and layoffs.
"In 2008, the big challenge is going to be around competitiveness for Canadian business within a very different world than we've known for most of the past decade," says Jock Finlayson, vice-president of policy for the Business Council of BC (BCBC). "We've got a currency trading, essentially, at par with the U.S. dollar. It's probably going to stay in that range."
Finlayson is forecasting the worst year in the past half-century for his province's forest sector, due in part to collapsing U.S. housing starts, weak lumber prices and taxes on Canadian exports under the Canada-U.S. softwood agreement.
The dollar's meteoric rise in 2007 forced industries and governments alike to rethink their strategies and policies.
Hargrove is calling on Ottawa to help offset a sharp downturn in productivity in the wake of global mergers and acquisitions, the high dollar and plant closures and slowdowns in the once-lucrative automotive industry.
"We've lost (in 2007) alone over 100,000 manufacturing jobs, and the government has done absolutely nothing to turn that around," says Hargrove.
"With an important industry like the auto industry, they saw fit to stand by and do nothing as we keep closing plants and laying people off," says Hargrove.
But Scotiabank chief economist Warren Jestin says Canada's largest province will be able to offset its continued, serious manufacturing losses through a service sector that accounts for 80 per cent of the provincial economy.
"The construction industry in Canada has added about as many jobs as the manufacturing sector has lost over the last year, so there are important offsets even for Ontario," he says.
Jestin doesn't single out the loonie as the most influential economic factor in Canada this year, but he says it will still be a key factor going forward.
"The first message on the currency is: Don't expect it to go down," he says. "In fact, I suspect it will stay strong and average above parity for (this) year. That's a big issue for tourism and manufacturing and the like. At the same time, however, whether the currency was at US$1.02 or 80 (cents), the competition from abroad would still be intense."
Although many tourist operators are concerned about the loonie's impact on U.S. tourist visits, the reality is that they have been declining for the past decade - even before 9/11, American travellers were choosing to stay home or visit more exotic destinations.
Jestin notes prevailing long-term issues will include increased competition from low-cost manufacturers in China, India and other countries; labour shortages caused by retiring Baby Boomers; and the "green revolution" - brought on by efforts to reduce carbon emissions and encourage environmental remediation efforts, which will result in major investments in new infrastructure.
"The emergence of India and China and a variety of other economies alone - as not only fierce competitors but also consumers of commodities - has really changed the economic landscape in this country, providing big challenges for Ontario and Quebec - manufacturing-based provinces - and providing enormous impetus for resource-producing areas," says Jestin. "B.C. and Alberta, of course, are at the top of the list."
As a result, he predicts growth will remain best in the west for five years or more. Despite concerns about Alberta's new oil and gas royalty regime, he predicts that province will lead the country's economic growth by a wide margin, while B.C. places a strong second at three per cent and Ontario falls below the national average of two per cent. Saskatchewan will approach the three-per-cent mark.
Jestin agrees with BCBC's Finlayson that the B.C. forest products industry will suffer major setbacks this year, but he adds several other sectors will keep B.C. economic growth above the national average.
"The forest products industry is extremely important in B.C., but natural gas has emerged as well," he says. "The mining industry is doing very well. Investment from Asia is going to accelerate.
"Investment in ports and in the transportation sector and the like, to get our goods to market in Asia, is going to be a huge benefit to B.C. You can throw the Olympics in there as well."
If not for a shortage of pipe- fitters, bricklayers and other skilled workers, B.C. and Alberta's growth would be even stronger, he says.
On a short-term basis, Jestin believes the sub-prime loan crisis in the U.S. will have the biggest effect on the Canadian economy. He notes central banks in many countries and regions, including Canada, have cut interest rates to keep their economies functioning normally.
"The short-term impact on financial markets is not as short term as most analysts had expected," he says.
Dan Kelly, senior vice-president of legislative affairs for the Canadian Federation of Independent Business (CFIB), says labour shortages rank as the top concern among his group's members, which consist of small and medium-sized enterprise owners.
A slowdown in Alberta's oil and gas sector has not alleviated the problem in any significant way. Alberta's revised royalty regime, which some groups blame at least in part for the slowdown, will not have a drastic effect on CFIB members, he predicts.
"While we do have about 1,500 members in the resource sector, we haven't been hearing a lot of doom and gloom yet," says Kelly, who is based in Calgary.
"Certainly, the natural gas sector has been taking it on the chin a bit, and drilling is down, but the shortage of labour is still far and away the worst of concerns facing our members."
But, he says, the skilled labour shortage is not as much of a concern in Manitoba, because its economy is slightly less robust, and the province has used immigration more strategically than the other three western provinces.
"We certainly do hear in Manitoba more traditional concerns about the nature of government - the high tax regime and the lack of progress on regulatory reform," says Kelly.
He says the western provinces have made significant headway on opening Canada's doors to more skilled immigrants through provincial nominee programs, but B.C., Alberta and Saskatchewan have plenty to learn from Manitoba on that front.
"Now, Manitoba can learn some lessons from other provinces in terms of some facets of the economy," he says. "There's been a bit of a 'don't-worry-be-happy' approach in governance in Manitoba that needs to change."
(Monte Stewart can be reached at monte@businessedge.ca)
