Ottawa 9th in Growth Forecast - April 15, 2004

Ottawa 9th in growth forecast
Outlook is hurt by slowdowns in construction, PS hiring

April 15, 2004

Kristin Goff
The Ottawa Citizen

A slowdown in construction and the more cautious spending approach of the Paul Martin-led government are reining in economic growth in the capital region this year, according to the Conference Board of Canada.

Overall, the region's total economic output, or GDP growth, will slow to 2.6 per cent this year down from 3.2 per cent last year, according to the Conference Board's Metropolitan Outlook, released yesterday.

"That's still respectable," said Alan Arcand, an economist with the Ottawa economic think-tank. In a comparison with 18 major urban centres, Ottawa ranked ninth in GDP growth.

It is expected to strongly rebound to 4.1 per cent growth in 2005.

The federal government's program spending review, announced in December after
Mr. Martin took over as prime minister, has gone a long way to taking the sizzle out of the economy, which last year had its best year since 2000.

"The sectors that are dragging us down would be construction and slower growth in public administration and defence," Mr. Arcand said.

This year the value of residential and non-residential construction will fall by more than five per cent, or $110 million, to $1.79 billion, Mr. Arcand predicts. Last year, construction output expanded by "a remarkable" 16.7 per cent on the double strength of a strong housing market and a string of major projects, including the Canadian War Museum, office buildings for federal employees, and hospital expansions.

But a host of proposed projects, announced by former prime minister Jean Chretien, are on hold because of the spending review. Those include a multimillion-dollar federal court and parliamentary buildings. A proposed history museum has been cancelled.

Residential construction will also slow from its recent strong pace. The Conference Board predicts a 12-per-cent drop in that sector this year to 8,000 housing starts. That's somewhat more pessimistic than the 8,800 Canada Mortgage and Housing Corp. predicts.
The federal government, which employs 114,500 people in the region, is also expected to slow its expansion to one quarter last year's rate. The projected 1.3-per-cent increase in public service employment is about one-tenth the hiring binge of two years ago, according to the report.

Despite the slowdown in construction and public service hiring, retailing, service and other sectors should hold up well, partly because they'll continue to benefit from employment and income growth in the region over the past several years, Mr. Arcand said.

Technology is also showing some signs of modest improvement. A forecast of two-per- cent growth in that sector doesn't include any increase in employment. By 2005, technology should be doing much better, with growth of 4.8 per cent in production of goods and services. That would bring it back to levels not seen since 1999.

Overall, the Conference Board predicts a modest a 1.3-per-cent increase in employment this year and an unemployment rate of 6.9 per cent, which is still slightly better than 7.1 per cent unemployment forecast for Canada.

Unemployment in the region should fall to six per cent next year, the Conference Board said.

Mr. Arcand declined to speculate on how a federal election might affect how the year unfolds in the region's economy. But others did not.

The region "will be in a state of flux and see no growth" for at least the next six or seven months because of the coming election, said Barry Nabatian, general manager of Market Research Corp. That is his "best-case scenario," assuming an election in the next few months and a return of a majority government by the Liberals, he said.

The slowing of the region's economy might have a bright side for some investors, according to a separate report yesterday that ranked Ottawa as the ninth-best of 59 Ontario cities for real estate investment.

Ottawa's cooler housing market is a good thing for investors who have a better chance of finding deals for rental investment properties, said Don Campbell, president of REIN, a real estate investment network.

He predicts rental vacancy rates, which have climbed recently, will decline again and the value of property will climb steeply again, after a brief plateau in the market.