Knowledge Economy

KNOWLEDGE ECONOMY SPECIALKNOWLEDGE ECONOMY SPECIAL

The many faces of the knowledge economyThe many faces of the knowledge economy

How has the situation evolved since thebeginning of the millennium?How has the situation evolved since thebeginning of the millennium?

Volume 20 / Summer 2010

2

Perspective Volume 20 / Summer 2010 www.desjardins.com/economics

EDITORIAL 3The knowledge economy: Has the rug been pulled out from under our feet?

THE SITUATION IN QUÉBEC 4The expansion cycle has already begun

THE SITUATION IN ONTARIO 6The manufacturing sector stimulates growth in Ontario

KNOWLEDGE ECONOMY 7How has the situation evolved since the beginning of the millennium?

KNOWLEDGE ECONOMY 13The many faces of the knowledge economy

INTERPROVINCIAL SHOWCASE 19Every province wants to shine

FORECAST TABLES 21Canada - Québec - Ontario - GDP by sector - Financial forecasts

ISSN 1189-3516Legal Deposit: Bibliothèque nationale du Québec

3rd quarter 1991

François DupuisVice-President and Chief Economist514 [email protected]

Yves St-MauriceDirector and Deputy Chief Economist514 [email protected]

Hélène BéginSenior Economist418 835-8444, ext. [email protected]

MAIN CONTRIBUTORS

OTHER CONTRIBUTORS

VersacomLinguistic Consultation

Economic Studies DivisionPhone: 418 835-2450 or 1 866 835-8444, ext. 2450Fax: 418 835-3705E-mail: [email protected] site: www.desjardins.com/economics

DESJARDINS GROUP

Danielle ProulxDesktop Publishing Technician

Finance and TreasuryExecutive Division and Officeof the CFO, Desjardins Group

NOTE TO READERS: In this text, the symbolsM and B are used respectively to refer tomillions and billions of dollars.

IMPORTANT: The opinions and forecastscontained herein are, unless otherwiseindicated, those of this document's authorsand do not represent the opinions of anyother person or the official position ofDesjardins Group. This publication is basedon data available as at July 2, 2010.

CONTENTS

Copyright © 2010, Desjardins Group. All rights reserved.

Joëlle NoreauSenior EconomistDocument Editor418 835-8444, ext. [email protected]

Benoit P. DurocherSenior Economist514 [email protected]

Chantal RouthierEconomist418 835-8444, ext. [email protected]

3


EDITORIAL

François DupuisVice-President and Chief Economist

The knowledge economy: Has the rug beenpulled out from under our feet?

At the end of the 2000s, the surge in commodity prices led some analysts to think that this boom mighttransform Québec into a supplier of metals and energy. They obviously don’t know Québec: while theseindustries did in fact pick up, it doesn’t mean that Québec was ready to replace the knowledge economywith natural resources.

Still, there are some worrisome signs, most importantly, the decline in the value of international high-tech merchandise exports, which peaked at the height of the tech bubble in 2000 (e.g., Nortel). Whileit would be simplistic to draw conclusions about the situation from just one economic indicator, the truthis exports of Québec know-how are a gauge of its competitiveness on the international market and thisindicator is disappointing.

Another way to take the pulse of the knowledge economy is R&D investments. On this front, Québecinvests more as a percentage of its GDP than any other province, but Ontario spends more per capita.That said, R&D expenditures have not grown significantly in the last ten years. Given that there will beclear winners in the knowledge race, Québec has to do better.

If Québec businesses, research centres and universities don’t have qualified workers, the province willbe hard pressed to succeed in the global knowledge economy. From 2000 to 2009, people with a post-secondary education had an easier time finding jobs than those without. Also, there has been an increasein the number of people assigned to research in Québec; so in this regard, the province scores points.Moreover, by 2018 there will be a greater supply of jobs for university graduates and technicians, whichonly confirms our belief that we have to do more to support student retention initiatives, education andresearch.

Québec’s knowledge economy is mainly associated with aeronautics, biotechnology and informationand communication technologies (ICT), where it is firmly entrenched. However, these sectors are notinvincible, as they are coveted around the world and many countries are investing heavily in them.Québec’s competitive position is being threatened and it has to do more than just hang on.

Fortunately, Québec has its strengths (star performers, concerted action, etc.) but that doesn’tnecessarily mean it can’t be overtaken, hence the urgency to continue innovating. However, to innovate,you need financing and highly qualified workers; that’s where Québec needs to direct its efforts.

Québec’s knowledge economy also relies on other less well-known but growing sectors such ascomposite materials, clean technology, genomics and nanotechnology. Day in and day out, thousandsof people work in R&D in the quest for knowledge, but also to create novel products and services thatcan improve our daily lives. In some respects, Québec is boarding a moving train since some countriesembarked on this research path long before it, but the province firmly believes in its potential. Althoughthe vitality of our knowledge economy hinges on many factors, one thing’s for sure: both private andpublic sector stakeholders will have to work together if they don’t want to see the rug pulled out fromunder their feet.

4


THE SITUATION IN QUÉBECThe expansion cycle has already begun

The economy’s recovery was surprisingly fast and strong.January’s 0.6% real GDP gain kicked the expansion cycle off.The province is thus ahead of its major trade partners, includingCanada (Graph 1) and the United States. Québec also standsout in terms of the employment market. Employment is nowabove its pre-recession peak, while the country still has somecatching up to do. Québec therefore has a sizeable asset thatgives households a stronger foundation, driving consumerspending and the housing market.

For now, the focus is on employment’s spectacular reboundand its ripple effect on consumer spending (Graph 2). Afterbottoming out last July, the number of workers grew by86,100. The gain has more than offset the 69,200 jobs lostduring the recession. Like the economy, almost all sectorshave taken back all of the ground lost during the recession.

Hiring is mainly coming from the private sector and about80% of the new jobs are full time. The employment market’simprovement is based on a solid foundation. As with theoverall economy, employment’s swift recovery period willgive way to more modest gains.

Consumer spending will also have a hard time keeping up thisfrenetic pace. Retail sales literally exploded in the first quarter,posting a much stronger gain than in Canada. The pace isexpected to slow to a more sustainable level, in conjunctionwith the forecast flagging of the employment market. A majorcorrection can be ruled out, as consumption’s recent growthis well aligned with income growth.

The speed at which the labour market has recovered solidifiedconsumer confidence. Confidence has also rebounded afterabruptly plunging in April in the wake of the provincialbudget and abrupt rise in mortgage rates. It seems that concernabout the state of Québec’s public finances dissipated rapidly.This year, the higher gas tax will be taking a bigger bite out ofconsumers’ pockets. Increases to the Québec sales tax (QST)and some rates come into effect in 2011, however, slowingconsumer spending growth somewhat. It will be 2.7% nextyear, compared with 4.4% this year.

The real estate market, which has been on the same trajectoryas consumption, should pull back somewhat in the secondhalf. A number of factors have already started to cool demandfor housing. Although mortgage rates edged down in May andJune, they are still appreciably higher than their mid-Marchlow. The rate posted for a five-year term is, for example,around 6%, compared with the floor of 5.25% reached thisspring. Note that the increase in interest rates had been widelyexpected and many households moved their purchases up inorder to capitalize on extraordinary credit terms.

The new federal legislation on loans with down payments of5% to 20% will also curb the housing market. About one thirdof borrowers usually turn to the Canada Mortgage and HousingCorporation (CMHC) to secure their loans. Households withdown payments of at least 20% will not be affected by themore stringent rules, in effect since April 19. The rules willprimarily hinder first-time buyers, who generally have lessmoney to put down.

Sources: Institut de la statistique du Québec, Statistics Canada and Desjardins, Economic Studies

Graph 1 – Québec recovered more quickly than Canada

241

243

245

247

249

251

253

2007 2008 2009 2010

In 2002 $B

1,185

1,195

1,205

1,215

1,225

1,235

1,245In 2002 $B

Québec (left) Canada (right)

Real GDP

Sources: Statistics Canada and Desjardins, Economic Studies

Graph 2 – The rise in employment stimulated retail sales

7.2

7.4

7.6

7.8

8.0

8.2

8.4

8.6

2007 2008 2009 2010

In $B

3,790

3,810

3,830

3,850

3,870

3,890

3,910

3,930

In thousands

Retail sales (left) Employment (right)

5


Hélène BéginSenior Economist

__________________________Detailed forecasts are on page 21.

The fact that starts dropped below the 50,000-unit mark inMay confirms that the expected slowdown has already begun.We had also been calling for a lull after the year’s outstandingstart. Our forecast for 48,000 new homes in 2010 still holds.The risks of a collapse are limited, as the economy has enteredanother expansion phase and employment’s recovery periodis now over.

Activity in resales slowed somewhat in May. The expectedpullback is materializing and should last for the next fewmonths. The annual increase in the average price, still close to10%, will shortly weaken, dropping to around the inflationrate as of next year. As prices are not overvalued in Québec,no pullback is anticipated in the near future. The increase inthe cost of borrowing, which will continue to rise over the nextfew years, will cut into households’ ability to buy property,however. If demand for housing were to drop too far, it couldbring prices down.

The labour market’s strong performance should, however,continue to offset the increase in interest rates. The positiveimpacts can already be seen. After hitting a cyclical peak of9.1% in the summer of 2009, the jobless rate fell to 8.0% inMay. This helped to put personal bankruptcies—which jumped20% last year—on a down trend (Graph 3). Although somewhatof a lull is materializing, the number of bankruptcies willremain high in 2010. Households’ delicate financial situationand the gradual rise by interest rates will prevent personalbankruptcies from declining next year.

Sources: Office of the Superintendant of Bankruptcy Canada and Desjardins, Economic Studies

Graph 3 – Personal bankruptcies have started to dip

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36

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

In thousands

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22

24

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28

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36

In thousands

There are some ongoing soft patches in exports. AlthoughMarch’s 4.0% increase by international shipments isencouraging, further gains are needed to make up for theground lost during the recession. Even though the U.S.economy is doing better, it is taking some time for demandfrom our primary customer to firm up. Given the elevateddollar, export firms are facing an additional obstacle.Manufacturers will have to make productivity gains to becomemore competitive, particularly in the American market. Therecovery by global trade, which reflects the upswing by mostof the planet’s economies, is having a positive impact on ourtrade. Exports abroad have started to turn around from the lowreached in October 2009 (Graph 4). Let’s hope that the globaleconomy will get through the European financial crisis withouttoo many pitfalls. A lasting recovery by Québec exports—which seems to be on the doorstep—could be compromised.

* Five-month moving average.Sources: Netherlands Bureau for Economic Policy Analysis, Institut de la statistique du Québec and Desjardins, Economic Studies

Graph 4 – Exports overseas are starting to benefitfrom the recovery by global trade

120

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2005 2006 2007 2008 2009 2010

2000 = 100

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8In $B

Global trade (left) Québec exports excluding the United States* (right)

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THE SITUATION IN ONTARIOThe manufacturing sector stimulates growth in Ontario

Benoit P. DurocherSenior Economist

__________________________Detailed forecasts are on page 21.

Ontario was hard hit by the last recession, with its real GDPcontracting by 3.4% in 2009, a much steeper decline than thenational average (-2.5%). Contrary to expectations, however,Ontario was not the province hardest hit by the recession.Data recently released by Statistics Canada show that outputplunged even more steeply in Newfoundland and Labrador,Saskatchewan and Alberta.

However, the winds have shifted for Ontario’s economy andthe results published in April by the Ministry of Finance showthat the province’s real GDP jumped by 6.3% (quarterlyannualized) in Q4 of 2009. Not only did consumer spendingmake a substantial advance, but government spending madea big contribution to economic growth as the impact ofgovernment stimulus plans was being felt to the full. Up by41.8% for the quarter, residential construction also posted itsstrongest growth since the summer of 1985. Finally, exportsof goods and services rose 19.1%, much faster growth thanposted by imports (+10.8%). The trade balance thus improvedby $5 billion in 2002 dollars, contributing to economic growth.

The recent improvement to economic conditions in Ontariolargely comes from the upswing in manufacturing, financeand insurance (Graph 5). Many manufacturing industries sawtheir output rise in the fourth quarter as demand accelerated inthe United States and Canada due to the lively domesticeconomy. That said, our focus is primarily on the quarterlyannualized 58.4% increase in auto and parts production. Thisstrong growth adds to the advances made in previous quarters,consolidating the auto industry’s rehabilitation.

It seems that the manufacturing sector continued to grow at afairly swift pace in early 2010. This is also the sector thatmade the biggest contribution to Canada’s 6.1% real GDPincrease last winter. As Ontario’s manufacturing sales wereabove the national average in the first quarter, everythingsuggests that Ontario also saw strong economic growth duringthat period.

Economic growth is still expected to slow substantially in thesecond half of 2010. Firstly, as everywhere else in Canada,the winding down of government stimulus plans will reducegovernments’ contribution to Ontario’s real GDP. Secondly,the real estate market slowdown that is forecast for the secondhalf of 2010 will likely be steeper in Ontario. Along with thedisappearance of some one-off factors that will affect theentire Canadian real estate market, the launch of the newharmonized sales tax no doubt intensified the impact of themoving ahead of some home purchases in the province. Thismeans that the drop could be steeper. Already, the number ofhousing starts appears to be cresting. After hitting 73,300 unitsin February (annualized), the latest results point to about65,000 units a month.

Like the Canadian economic scenario, the Ontario economy’soutlook for growth has been revised upward due to a morerobust first half of 2010 than initially predicted. Ontario’s realGDP should go up by 3.9% this year, followed by a 2.8%increase next year.


Graph 5 – The rebound by the manufacturing and financial sectors boosts Ontario’s economy

-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Public administrationOther services

Accommodation and food service sArts, enterta inment and recrea tion

Health care and socia l a ssistanceEducational services

Professional a nd administrative service sFinance, insurance, real estate service s

Information and cultural industrie sTransporta tion a nd warehousing

RetailW holesa le

ManufacturingConstruction

UtilitiesMining

Agriculture, forestry, fishing and hunting

In % points

Contributions to real GDP by industry – Q4 2009

Goods sector

Services sector

30

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90

2008 2009 2010

In thousands

30

40

50

60

70

80

90

In thousands

Sources: Canada Housing and Mortgage Corporation, and Desjardins, Economic Studies

Graph 6 – Housing starts appear to have stabilizedin the last few months

Graph 6 – Housing starts appear to have stabilizedin the last few months

Residential Housing Starts in Ontario

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KNOWLEDGE ECONOMYHow has the situation evolved since the beginning

of the millennium?

THE EXPORT BAROMETERInternational exports can be broken down by the technologylevel of the goods shipped. This metric, created by the Institutde la statistique du Québec (ISQ), shows whether Québec’shigh-tech exports have increased or decreased this last decade.The ISQ divides goods into four export categories: hightechnology, medium-high technology, medium-lowtechnology, and low technology. The content of each categoryis detailed in the box on page 8.

Four sectors dominate the high-tech category. In 2009,aeronautics and aerospace led the way, accounting for twothirds of the exports in this category, followed by radio,television and communication equipment and apparatus(11.8%), pharmaceutical products (8.8%), and medical,precision and optical instruments, watches and clocks (8.7%).This ranking is quite different from the one at the beginningof the decade, before the restructuring of the information andcommunication technology (ICT) sector. Back then, radio,television and communication equipment and apparatusaccounted for half of Québec’s high-tech international exports,and aeronautics and aerospace was in second place (36.8%).Telecom equipment manufacturers were firmly entrenched inQuébec, with Nortel leading the way.

AN UP-AND-DOWN DECADE FOR EXPORTSFrom 2000 to 2009, the total value of internationalmanufacturing and high-tech exports fell 25% and 39%,respectively. Graph 7 shows that the value of high-techproducts peaked in 2000 before the tough restructuring ofcomputer and communication equipment manufacturers, whofelt the brunt of the steep drop in 2001 and 2002. For example,from 2000 to 2009, the value of radio, television and commu-nication equipment and apparatus exports nosedived from

Just what is the knowledge economy? Few can explain this concept and fewer still agree on a definition. The term “knowledgeeconomy” has almost disappeared from our collective vocabulary, perhaps because our dreams of a technological revolutionevaporated when the tech bubble burst in 2000. In fact, the very concept of knowledge economy seems to no longer exist. Yet, thereis broad-based consensus that a vast amount of knowledge will be needed to succeed in the 21st century. How has Québec faredin this regard? It’s hard to say. We can get a better idea by looking at certain statistical indicators. Still, no matter how useful,these figures don’t tell the whole story and can only be used as reference points. Our goal in this issue of Perspective is not toanalyze this topic in depth but rather to look at where Québec stands 10 years into the new millennium.

$11.7 billion to $1.7 billion, a decrease of almost 85%, whileexports of office, accounting and computing machinery wereslashed in half ($1.3 billion to $0.6 billion). Aeronautical andaerospace exports were affected to a lesser extent, contractingfrom a high of $11.6 billion in 2001 to $9.4 billion in 2009.Lastly, exports of pharmaceutical products almost doubled,rising $0.6 billion to $1.2 billion from 2000 to 2009, whileexports of medical and optical precision instruments, watchesand clocks advanced from $1.1 billion to $1.2 billion. Theseincreases were not, however, enough to offset the decrease inthe other high-tech sectors.

Last year was difficult on every level: exports declined in eachsub-category. The value of international manufacturing exportsfell 18.1% in one year alone. High-tech exports dropped 8.6%from 2008, to $14.2 billion. Medium-low technology productswere most affected, plunging 30%, largely due to the collapsein metal prices.

8,000

10,000

12,000

14,000

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18,000

20,000

22,000

24,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In $M

46,000

51,000

56,000

61,000

66,000

71,000

76,000In $M

High-tech (left) Me dium-high-tech (left) Medium-low-tech (left)Low -tech (left) Total manuf. (right)

Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

By Level

Graph 7 – The value of Québec high-techmerchandise exports is down

8


In summary, this past decade saw a decline in the value andvolume of high-tech products, which took a major hit whenthe communications equipment industry imploded. Despitenow holding first place, aeronautics and aerospace has beenunable to offset the void left by manufacturers of radio,television and communication equipment and apparatus andmakers of office, accounting and computing machinery.Although one might be tempted to conclude that Québec hashad the rug pulled from under its feet, this would be premature,since this part of the analysis did not include the servicescomponent.

R&D EXPENDITURES: ANOTHER INDICATORR&D spending is another indicator of the efforts made totransform Québec into a knowledge society. However, likehigh-tech exports, it only presents one aspect of the situation.In current dollars, intramural expenditures are up since thebeginning of the 2000s, just as in Ontario. In Québec, theyreached $7.8 billion in 2007, the most recent year for whichdata is available. However, in constant dollars, they grew verylittle from 2004 to 2007. With respect to GDP, theseexpenditures accounted for between 2.54% (2000) and 2.79%(2002). In 2007, they represented 2.63%, surpassing Ontario(2.32%) and the Canadian average (1.90%). Thepharmaceutical industry’s strong presence in Québec explainsthe heavy R&D spending.

And what about per capita R&D expenditures? In constantdollars, Québec ranked above the Canadian average from2000 to 2007, with per capita spending of $914 in 2007,compared to $760 in Canada. However, Ontario has beenoutpacing Québec in this regard since the beginning of thedecade.

A fact worth mentioning is that not all research leads to anexportable product and therefore no direct link can beestablished between R&D expenditures and high-tech exports.Approximately 60% of the spending takes place in-house.The purpose of applied research is to make companies moreprofitable or competitive, or to help them comply with stan-dards or regulatory requirements, without necessarily leadingto a product intended for sale. The other part, scientificresearch, seeks to create new knowledge, which sometimesleads to discoveries, and is primarily conducted in universities,centres, institutes and other public research organizations.

If we look at R&D spending as an indicator of Québec’sperformance in the knowledge economy, we can say that theprovince’s efforts have been sustained since the early 2000s.

EXPLORING MINDSAlthough the number of people assigned to R&D does notrepresent all the workers associated with the knowledgeeconomy, it does provide another measure of Québec’s ef-forts to become a part of the technology wave. Table 1compares the total personnel assigned to R&D in 2000 and2007 (the year for which the most recent data is available).The first thing we notice is that the number grew 40%, from35,100 to 40,112, a fairly high average increase of 4.9%per year.

DEFINITION OF MANUFACTURING EXPORTS BYTEHNOLOGY LEVEL, QUÉBEC

High technology:Aeronautics and aerospace industryPharmaceutical productsOffice, accounting and computing machineryRadio, television and communication equipment andapparatusMedical and optical precision instruments, watches andclocks

Medium-high technology:Electrical machinery and equipmentMotor vehicles, trailers and semi-trailersChemicals, excluding pharmaceutical productsRailroad rolling stock and other transportation equipmentMachinery and equipment, n.e.c.

Medium-low technology:Coking, refined petroleum products and nuclear fuelRubber and plastic productsNon-metallic mineral productsBuilding and repairing of ships and boatsBasic metal productsFabricated metal products, except machinery andequipment

Low technology:Manufacturing and recyclingPaper, cardboard, publishing, printing, wood and furnitureFood, beverage and tobaccoTextiles, clothing, furs and leather

Source: Institut de la statistique du Québec

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Almost half of the R&D workers (47.4% in 2007) were foundin the service sector, more specifically, computer systemsdesign and related services (5,083 in 2007) and scientificR&D (4,844). Close to 42% were employed in manufacturing,with the greatest number in aerospace products and parts(3,308).

Research is not the exclusive domain of specialized centresand universities, although many people there work in areasnot usually associated with high technology: agriculture,forestry, fishing and hunting, mining, oil and gas extraction,and construction. A static comparison between 2000 and2007, much like comparing two snapshots, presents anincomplete version of reality. That said, we still see steadygrowth in the number of people assigned to R&D in Québec,with the exception of a decrease in 2005, when jobs were cutin pharmaceutical and drug products, communicationequipment, and computer systems design. Therefore, Québecearns points in terms of R&D workers.

AND PEOPLE?Knowledge is first and foremost a question of people:knowledge holders, manufacturers and users. As we haveseen, knowledge economy workers are not only employed inresearch and development. They are found in all sectors of theeconomy, even those rarely associated with technology. It isinteresting to see how the labour market has evolved inQuébec since 2000 in terms of educating these workers.

From 2000 to 2009, Québec created 441,400 new jobs, half ofwhich were filled by university graduates (172,900 held abachelor’s degree and 48,300 a master’s or PhD). During thesame period, the number of people on the labour marketwithout a high-school education fell by 39,100. It would berisky to jump to conclusions based on these figures. Whilemore jobs were created for people with post-secondarydiplomas and university degrees, the reduction in the numberof less-educated workers can also be explained by structuralchanges (e.g., forestry workers in a rapidly changing industry,fishermen). We can also expect the retirement of a cohorthired 30 or 40 years ago without a high school education andwho completed their training on the job. This trend in itself isreducing the number of jobs held by less-educated people. Bethat as it may, it is comforting to see that the jobs created from2000 to 2009 went largely to university graduates, who wecould call knowledge holders.

Lately, the pickup in employment growth has benefited thosewith a post-secondary education. As such, when we comparethe change in employment based on the level of education forthe first five months of 2010 and the first five months of 2009,the gains were made by people with university degrees(Graph 8 on page 10). The second group of winners is thosewith a post-secondary certificate or diploma who lost jobsfrom January to May 2009 but secured employment fromJanuary to May 2010. However, the group with just a highschool education saw jobs disappear during both periods.Lastly, the number of jobs requiring no high school educationshrank in the first five months of 2009, but some have returnedsince the beginning of 2010. It bears mentioning thatemployment in healthcare (which also includes unskilled jobssuch as clerks, and housekeeping), trade and mining hasresumed growing since the end of the recession.

2000 2007f

Agriculture, forestry, fishing and hunting 322 650

Mining, quarrying and oil and gas extraction N/A 133

Utilities N/A 724Construction N/A 532Manufacturing 19,000 20,427

- pharmaceutical and medical 1,318 1,891

- machinery 1,119 1,693 - communications equipment 1,998 939 - measuring and medical instruments, etc. 2,967 1,966

- aerospace products and parts 3,653 3,308

Services 14,792 23,293 - wholesale trade 1,325 2,591 - information and cultural industries 1,812 2,773

- architectural, engineering and related services 2,409 1,924

- computer systems design and related services 3,793 5,083

- scientific R&D 1,492 4,844

- healthcare and social assistance 2,245 2,802

Total 35,100 49,112Source: Ins titut de la s tatis tique du Québec

2000 and 2007

Table 1 – Total personnel assignedto intramural R&D by industry

10


EDUCATION PAVES THE WAY TO A JOBGraph 9 shows the advantage of education on the labourmarket, resulting in a higher employment rate depending onthe level of education attained. From 2000 to 2009, all therates remained virtually unchanged except the rate for highschool graduates, which slowly declined. The fact is that in2009, the employment rate fell for all workers, hardly surprisingconsidering we were knee deep in the recession.

Moreover, the percentage of university graduates on theQuébec labour market grew from 1998 to 2008, rising from18.1% to 20.5%. In education and in professional, scientificand technical services, 58.8% and 44.5% of workers,respectively, were university graduates, proportions that haveheld fairly steady for the last 10 years. In fact, during this sameperiod, the proportions increased in almost all the othersectors. Is this a sign of growing demand for the type of skillsrequired by a knowledge economy? Although it’s hard tocategorically answer yes, what is clear is that a greater numberof jobs are going to increasingly educated workers.

SCIENTIFIC ACTIVITIES ARE NOT THE SOLE PURVIEWOF THE CENTRAL REGIONSAs we have seen, the data required to accurately assess theevolution of Québec’s knowledge economy is hard to comeby, and regional data is even harder to find. However, we dohave statistics that show that the central regions are not theonly ones offering specialized jobs. Table 2 on page 11 showsthe proportion of people aged 25 to 64 exercising a scientificor technical occupation out of the total jobs for each region.In 2008, the Québec average was 36.7%. In Montréal,Outaouais and Capitale-Nationale, the proportions variedfrom 42% to 44%. Most of the regions were above 30%, withthe exception of Côte-Nord and Nord-du-Québec which, forthe purpose of labour market statistics, are combined, andBas-Saint-Laurent, due to the strong presence of the forestryindustry.

DO RISING COMMODITY PRICES POSE A THREAT TOTHE KNOWLEDGE ECONOMY?The 2000s were characterized by a surge in commodityprices, with metal prices rising to the point of reviving miningand mineral exploration in Québec and elsewhere in theworld. Some suggested that commodities would become thenew driver of the economy, replacing the crumblingmanufacturing sector and a technology industry that had lostsome of its sheen. But the Klondike never really materialized,despite the jobs created in the mining sector.

Can we therefore conclude that since 2000 the labour markethas improved in sectors where there are more knowledgeworkers? Yes, but only to a point. The fact is that most of thenew employment created between 2000 and 2009 was inservices, as shown in Graph 10. During this time, jobs werecreated in almost all industries except goods production, dueto the decline in manufacturing (-100,700), in forestry andfishing (-11,100), and in agriculture (-2,700). Leading the

-40 -20 0 20 40 60 80

T otal

Less than grade 9

Some high school

High school graduation

Some postsecondary

Postsecondary cert. or diploma

University degree

Bachelor's degree

Above bachelor's degree

January-May 2009 vs.January-May 2008

January-May 2010 vs.January-May 2009

Graph 8 – Jobs for university graduates have not decreased

p: projectionSources: Statistics Canada and Desjardins, Economic Studies

In thousands

40

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80

2001 2002 2003 2004 2005 2006 2007 2008 2009

In %

40

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80In %

Some high school Voca tiona l tra ining University degreeUnde rgradua te de gree Gra duate degree


By Level

Graph 9 – Employment rate rises with education

-100.7-11.1

-2.7-0.17.07.98.3

17.028.329.333.139.043.3

70.378.9

92.1109.5

441.4-37.3

478.7

-160 -60 40 140 240 340 440 540

M anufacturingForest. and fish.

AgricultureTransport & wareh.

UtilitiesReal estate & leasing

Other servicesPublic administration

Accommodation & foodInform., cult. & recreation

Business supportEducation

Finance, ins., real estateConstruction

Prof., scien. & tech. servicesTrade

Health. & social assist.T otal

Goods-producingServices

Graph 10 – Both low- and high-tech jobs grew from 2000 to 2009


In thousands

11


way are health and social services (+109,500), which haveboth knowledge workers (health professionals, researchers,etc.) and less-educated workers (cooks, clientcare or housekeeping attendants). Next inline are the retail and wholesale sectors(+92,100), where few workers have morethan a high school education, professional,scientific and technical services (+78,900),areas associated with knowledge, construc-tion (+70,300), where recruits typically havelittle job training, and finance, insurance andreal estate, where most of the employeeshave received academic training beyondcollege. The breakdown is hard to determinesince hiring took place across almost allindustries. However, a quick calculationreveals that more jobs were created by thosesectors generally associated with theknowledge economy.

More specifically, in professional, scientific andtechnical services, jobs grew in management consultingservices (13,500 to 24,100 from 2000 to 2009),scientific R&D services (9,200 to 15,100), designservices (8,900 to 14,400), and software publishing(2,200 to 4,700), to name just a few.

Since the beginning of the decade, most of the joblosses have been in low-tech industries. Still, not alljobs requiring less education are disappearing, asevidenced by their sharp increase in trade and cons-truction. That said, hiring is stronger in areas requiringmore knowledge, and this despite the rebound incommodity prices.

A LOOK AT THE FUTUREAs we have seen, the Québec labour market seems tobe increasingly looking for more highly educatedworkers. However, will this still be the case at the endof the next decade? Studies conducted by the Centred’étude sur l’emploi et la technologie (CETECH) giveus an idea of what things will be like in 2018.

Table 3 presents the situation in 2008 and in 2018 byskill level. CETECH clearly states its position: “Justbecause the professional skill level is expected togrow the fastest does not mean that it will capture thelargest share of the new jobs created.”1 It is estimatedthat 271,000 new positions will be created between2008 and 2018, of which 93,000 will require technical

training (+63,000 requiring a technical college education and+30,000 requiring high school vocational training). There

Scientific or technical occupation

Total(in

thousands)

Share of total jobs of

25-64 age group (%)

Em ploym ent of 25-64-year-

olds (in thousands)

Québec overall 1,189.0 36.7 3,239.2Bas-Saint-Laurent 23.5 29.5 79.6Saguenay–Lac-Saint-Jean 34.8 33.5 103.8Capitale-Nationale 127.7 42.7 299.2Mauricie 30.9 31.7 97.5Estrie 41.1 33.5 122.8Montréal 349.9 43.7 800.5Outaouais 69.9 42.3 165.1Abitibi-Témiscamingue 18.0 31.0 58.0Côte-Nord and Nord-du-Québec 11.7 27.5 42.6

Gaspésie–Îles-de-la-Madeleine 10.6 33.2 31.9

Chaudière-Appalaches 51.8 30.2 171.3Laval 66.5 39.8 167.0Lanaudière 58.7 32.3 181.7Laurentides 71.2 31.5 226.1Montérégie 192.1 32.4 593.6Centre-du-Québec 31.0 31.4 98.8Note: A ll f igures have been rounded; therefore, totals may not equal the sum of the components . Sources: Statis tics Canada and Institut de la s tatis tique du Québec

in 2008

Table 2 – People aged 25 to 64 working in a scientific and technical occupation

Skill LevelEmployment in 2008 (in thousands)

Employment in 2018

(in thousands)

Annual average rate of change (%)

Management 351 362 0.3Level A - Professional 677 756 1.1Level B - Technical 1,182 1,275 0.8 Level B - Technical I* 489 552 1.2 Level B - Technical II* 693 723 0.4Level C - Intermediate 1,186 1,255 0.6Level D - Basic 485 505 0.4Total jobs 3,882 4,153 0.7

Table 3 – A window on 2018

* Technical I corresponds to jobs requiring technical college education.** Technical II corresponds to jobs requiring high school vocational education. Source: Emploi-Québec, Le marché du travail au Q uéb ec, Perspectives à long terme, 2009-2018

12


Joëlle NoreauSenior Economist

will be 79,000 new professionals with a university degree onthe market. And, 69,000 jobs will be available to high schoolgraduates with on-the-job training. Lastly, there will be about20,000 jobs for workers with basic skills (retail, restaurants,etc.). These forecasts do not take into account replacementsfor retired workers.

This analysis provides a more realistic look at post-recessionlabour market statistics. Although new jobs are expected toincrease in all skill levels over the next few years, growth willbe greater (1.2%) in positions requiring a college education,followed by those requiring a university degree (1.1%). Ifthere is in fact a link between education and the knowledgeeconomy, then it is reasonable to say that Québec will be partof this trend. That said, the efforts made to stem the dropoutrate will have to be successful so these future jobs can befilled.

A LEADER OR A FOLLOWER?Is Québec’s knowledge economy in better shape now than inthe early 2000s? If we look at just merchandise exports, wewould have to say no. From an export perspective, particularlyhigh tech, the reality is that the decade began on a very sournote, and Québec has been unable to make up the ground lost.In the knowledge race, the province has been up against otherplayers that also did their best to leverage technology. Québec’spillar, the radio, television and communication equipmentand apparatus industry, was overtaken by aeronautics andaerospace. The question is: Have we simply replaced onevulnerable industry with another? There is a temptation toonly look at physical production, but the fact is that the GDPgenerated by the ICT services sector is more than five timesgreater than that of the manufacturing component. Moreover,the service sub-sector grew steadily from 2002 to 2008.

The knowledge economy cannot be evaluated solely on itscontribution to GDP or on the volume of goods produced forexport. There are other indicators, such as intramural R&Dexpenditures. Although these are up in current dollars, theyare stagnating in constant dollars. Knowledge is first andforemost produced and held by people and, in this regard, thepicture is brighter. The number of R&D workers is growingin Québec. But knowledge economy workers are not foundonly in research. A growing number have a post-secondaryeducation and half of all the positions opened between 2000and 2009 were held by university graduates. Job creationsince the recession has mainly benefited more educatedworkers, translating into higher employment rates amongthose with a post-secondary education. Moreover, althoughthe surge in commodity prices led to recruitment in low-techindustries, it did not upset the apple cart. For the last 10 years,Québec has been creating jobs in all activity sectors, althoughto a greater extent in industries that require a higher level ofeducation and more knowledge. What’s more, labour projec-tions point to slightly faster growth in demand for college anduniversity graduates, although there will be more jobs fortechnicians by 2018. This only reinforces the case for stayingin school, promoting education and funding a competitive,world-class education system.

In conclusion, these indicators, which do not cover all theaspects of the knowledge economy, paint a mixed picture.Besides the composition of the labour force, which seemsincreasingly evolving towards educated workers, the fact isthat not all the other parameters used in this analysis arereassuring. Much like the rest of the world, Québec needs toenhance its knowledge, products and economic activities.The question is: How much time does it have to do all this?The answer depends on whether it wants to be a leader or afollower.

____________________1 CETECH, Le marché du travail au Québec, Perspectives à long terme 2009-2018, November 2009.

13


KNOWLEDGE ECONOMYThe many faces of the knowledge economy

AERONAUTICS, A STRONG LINKIN THE KNOWLEDGE ECONOMYTypically associated with high technology, the aeronauticalindustry has a strong presence in Québec both in terms of jobsand world-class corporations. However, quantifying itspresence poses a problem since it is defined in more than oneway. For example, the Institut de la Statistique du Québec(ISQ) has a more narrow description that lends itself tointernational comparisons. For its part, the Ministère duDéveloppement économique, de l’Innovation et de l’Expor-tation (MDEIE) has a broader definition. As such, the numberof aeronautical jobs in Québec ranges from 24,300 (in 2007,according to the ISQ) to 40,200 (in 2009, according theMDEIE).

In the same vein, the number of companies varies from 76(those with primarily aeronautical activities) to 200 if thebroader definition is applied. In general, the number hasdeclined, especially for SMEs with fewer than five employees.This situation has also been observed elsewhere in Canadaand is explained by the fact that large companies have soughtto cut expenses and limit the number of suppliers.Approximately 60% of the country’s aeronautical activity isbased in Québec and, in this regard, the main Canadiancompetitor is Ontario. However, the fight to preserve andgrow this sector is international and there is no shortage ofcompetitors. In North America, the rivals are Washington,California and Texas (Table 4). Elsewhere in the world,Brazil is a formidable opponent and China is working onbecoming a leader.

In short, just because Québec has a strong aeronauticalindustry does not mean it can rest on its laurels. From thelooks of things, it will have to continue working hard to keepthis sector strong. According to the ISQ, about 3,800 peopleworked in aeronautical R&D between 2004 and 2006.

In Québec, the knowledge economy has its star performers, usually associated with three sectors: aeronautics, pharmaceuticalsand information and communication technologies (ICT). However, these three “classic” high-tech sectors do not tell the wholestory. For some 20 years now, Québec has attempted to stand out by getting involved in emerging or growing fields of researchand in the production of high-tech goods and services in a bid to stem the erosion of Québec’s traditionally industrial base. Besidesbeing a defensive strategy, this move was aimed at fending off the competition delivered by both advanced and emergingeconomies around the world. While knowledge may seem to be an elusive concept, the companies and workers in this industryare all too real: here is an overview.

THREATS, BUT ALSO STRENGTHSQuébec has strengths and has no intention of giving up anyground. In this regard, the aerospace cluster Aero Montréaland consortiums such as CRIAQ (Consortium for Researchand Innovation in Aerospace in Québec) are levers that helpimprove production processes, make supply chains morecompetitive and stimulate SME innovation. If Québec is toremain among the best, everyone from the industry and itsworkers to educational and research institutions mustunderstand the urgency to innovate.

The aeronautical industry has been around for a long time andtherefore has more than one weapon in its arsenal. For in-stance, it is not only active in aircraft assembly but also insoftware, surface treatment, composite materials, rapidprototyping, hydraulics, avionics (aviation electronics) andelectro-optics. Another asset is a well-educated labour force,thanks to the close ties between the industry and academia.However, this could change if recruitment becomes tougheras young people shy away from aeronautics, due to theindustry downturn in recent years.

2001 2005 2006 2007

Canada 48,788 41,838 42,574 42,617 Ontario 15,376 10,851 10,780 9,813 Québec 24,997 23,951 23,801 24,331

U.S. 506,002 453,136 470,696 487,201 Arizona 30,227 26,569 26,706 27,426 California 85,051 72,690 72,664 71,971 Kansas 47,736 36,308 38,164 41,092 Texas 41,037 48,315 48,993 47,871 Washington 87,243 65,616 73,180 80,036

Table 4 – Total aerospace jobs

Sources: Ins titut de la s tatis tique du Québec and Bureau of Labor Statis tics

(2001-2007)

14


Being among the best right now is not enough to ensure thefuture of this key sector of the knowledge economy. Companiesmust always be forward thinking in every aspect of theirbusiness. “What will the next generation of commercialaircraft look like?” is an example of questions being ponderedby the industry. In this regard, the Future Major Platforms(FMP) initiative is aimed at introducing the Canadian aerospaceindustry to supply programs for aircraft in development. Atthe same time, the industry must meet a growing imperativefor energy efficiency and sustainable development, which isno small feat considering it also has to be competitivelypriced. Lastly, the trend is toward globalized R&D as thevalue and innovation chains become more integrated. WillQuébec be able to keep up?

BIOTECHNOLOGY: A KALEIDOSCOPE OF ACTIVITIESBiotechnology is a catch-all term that encompasses manysectors. In order to better define this sphere of activity, wehave chosen to use the MDEIE’s breakdown, which compri-ses three categories: biopharmaceuticals, medical devices,and natural health products. Other sources include genomics.

In Québec, the biopharmaceutical industry is the figureheadof the biotech sector, the one that immediately springs to mindwhen you think about biotechnology. The biopharmaceuticalindustry includes basic and applied research (pre-clinical andclinical) as well as the production and marketing of medicationsand preventive and diagnostic products. In 2008, it had about145 companies (including 28 large biopharmaceutical firms)and provided 20,900 jobs. There were also 10,500biopharmaceutical researchers and student researchers inpublic and parapublic organizations. This industry has beenhard hit in recent years as financing problems, mergers andfierce competition have eliminated many jobs in Québec andelsewhere.

The biomedical equipment industry covers a broad spectrumof activities that encompasses the development of products todiagnose, treat or prevent disease and restore or correctorganic function or body structure. In Québec, about 100companies, most of them SMEs, are active in this field andemployed 4,000 people at the end of the 2000s.

As for natural health products, 140 companies were involvedin manufacturing or commercialization in 2009. Of thisnumber, 58 manufactured or produced active ingredients.The industry employed about 3,500 people, two thirds (2,180)of whom worked in production of natural products andingredients. There were 130 R&D workers.

Biotechnology also includes genomics.1 In the second half ofthe last decade, over 600 researchers were directly or indirectlyinvolved in projects in Québec. There were about 40 companiesand more than 15 research centres or institutes. Great hopesare being pinned on this science, which has applications inmedicine, microbiology, forestry and agriculture, to namejust a few.

THE FUTURE OF QUÉBEC’S BIOPHARMACEUTICALINDUSTRYThe biopharmaceutical industry has lost some of its appeal inrecent years, and the slowdown is quite perceptible: labs haveshut down and jobs have disappeared almost everywhere inthe world. However, Québec hasn’t fared too badly comparedto other places (Graph 11 and Table 5). Although 45% of allCanadian R&D investments are made here, there is still athreat, namely, rising R&D costs due to the increasinglycomplex composition of drugs today.

Source: Ministère du Développement économique, de l‘Innovation et de l‘Exportation

Graph 11 – Employment grew in Québec’sbiopharmaceutical sector in the 2000s

10,000

12,000

14,000

16,000

18,000

20,000

22,000

2001 2003 2005 2008

Jobs

10,000

12,000

14,000

16,000

18,000

20,000

22,000

Jobs

Table 5 – Québec biopharmaceutical

He alth biote chnology- 67 companies / 2,300 jobs (11%)

Large biopharmas:- 28 companies (several multinationals) / 9,200 jobs (44%)

Source: Ministère du Développement économique, de l'Innovation et de l'Exportation

industry - 2008145 companies / 20,900 jobs

Contract re se arch - 29 companies / 4,600 jobs (22%)

In addition to the 20,900 industry jobs, the re w ere 10,500 biopharma ceutica l re se arche rs and stude nt resea rchers in public and para public organizations.

Ge ne ric and contract pharmace utical manufacturing

- 21 companies / 4,800 jobs (23%)

15


At the same time, financing sources are drying up. First,patents that protect certain flagship medications are about toexpire, which will reduce pharmaceutical revenues that fi-nance research. In fact, many patents developed by Québec-based companies will expire this year. Second, biotech ven-ture capital investments fell from $256 million in 2007 to $88million in 2009. The darling of the 2000s, biotech has sincelost its appeal: the efforts of the last few years have yieldedfew commercial successes. In the spring, the media reportedthat roughly 70% of Québec’s biopharmaceutical companieswere in such financial straits that they were not expected tolast another year.

Moreover, competition is fierce. The weaker euro is givinglarge European pharmas a chance to regain their past glory.As well, 43 U.S. states have made biopharmaceuticals one ofthe two priority sectors for development. As such, the fighthas been on for some time now and it’s a fight to the finish.

In addition to competition, a strong loonie, rising researchcosts and patents set to expire this year, the Québec industryis facing its own set of challenges. Inclusion on the list ofdrugs covered by the Régie de l’assurance maladie du Québecand other provincial governments is the gateway to commer-cial success for newly discovered drugs. However, withgovernments looking to trim spending, nothing is guaranteed.As well, the industry must finance its innovations and boostproductivity. More mergers and acquisitions can be expectedin this race for efficiency and dominance. However, largefirms might be more tempted to buy out small innovativecompanies to meet their objectives: companies here at homemust find ways to be flexible in order to catch the next waveand remain on the crest.

In response to complaints from the industry, and faced withmounting competition from both developed and emergingcountries, the Québec government came up with abiopharmaceutical strategy in 2009 whereby $122.8 millionwill be granted over three years. Five areas of interventionwere defined in addition to manpower and promoting Québec’simage in this sector, and the lion’s share of the money will goto supporting the development of large pharmas ($50 mil-lion), research ($39 million) and biotech firms (roughly $31million). More investments could be forthcoming. In short,the plan is to fight tooth and nail to make sure this sector of theknowledge economy remains strong in Québec.

INFORMATION AND COMMUNICATION TECHNOLOGIESARE PERVASIVEICT, as it is commonly known, is a pillar of Québec’sknowledge industry. Since the tech bubble burst in the early2000s, this sector has lost some of its prestige in the public’seye. This perception is due to a lack of understanding of thesector. ICT is typically associated with the manufacture oftelecom and other equipment. The fact is that ICT servicescontribute six times more to GDP than ICT manufacturing (itwas five times more in 2002) (Graph 12). While manufacturingGDP averaged $1.86 billion (in constant dollars) from 2002to 2008, the corresponding figure for services rose 28%during this period (still in constant dollars). This sectortherefore continued to grow during the first decade of the2000s, contrary to the general impression that it was struggling.

According to the MDEIE, Québec had 7,300 ICT companiesin 2008 generating revenues in the vicinity of $34 billion andproviding 146,000 jobs. Other sources place the number ofjobs at closer to 160,000. According to the ministry, thisindustry accounted for 5.1% of Québec’s GDP and 3.7% ofworkers that year. With annual R&D investments of $1.6billion, it is truly a big part of the knowledge industry. Andwhat’s more, it’s spread across Québec thanks to the regionalniches of excellence strategy, although a heavy concentrationof activities is found in the Montréal metropolitan area.


Graph 12 – ICT services contribute more to GDP than ICT manufacturing

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

2002 2003 2004 2005 2006 2007 2008

In $M

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

In $M

Manufacturing Services

16


In 2008, four industries dominated on the production side(Table 6): microelectronics (8,200 jobs), telecommunicationsequipment (12,000 jobs), instrumentation (4,300 jobs) andoptics, photonics and laser (3,700 jobs).

That year, the main activity in microelectronics was semi-conductor production (Graph 13). Québec had many assets,including the presence of global leaders and a dynamicresearch environment (associations, universities, universityresearch centres, technology cluster, and more).

In telecommunications equipment, 160 companies worked tosupply wireless and wireline (with wires) networks as well astelecommunication systems and software (Graph 14). Heretoo Québec has advantages, including the presence of world-

class companies, expertise in high-tech niches such as fibre-optic transmission and test equipment, a creative, experiencedlabour force, and both public and private research infrastruc-tures. Québec also offers tax incentives. This sector is booming:around the world, there are now more wireless than wirelineconnections, and the industry must do more than just followthe trend. To do so, it must invest and innovate.

In instrumentation, Québec boasts over 200 companies, mostlySMEs. These produce, among other things, telemetry systemsand measurement and analysis devices. Promisingdevelopments are taking place in the fields of scientific,navigation and detection instruments as well as electro-medical devices. In optics, photonics and laser, some 100Québec companies are supported by eight research centresthat alone provide 800 jobs. While Québec is a powerhousein this field, it is not alone. The first place in Canada goes toOntario, home to 60% of the country’s establishments. BritishColumbia and Alberta are also active in this area of expertise.All to say that the competition is not only from abroad.

ICT SERVICES: AN UNDERESTIMATED PRESENCEAccording to the MDEIE, in 2008 Québec had approximately350 companies operating in the software industry, accountingfor 18% of all such companies in Canada and 23% of Canadianjobs in this industry. According to KPMG, Québec had amajor comparative advantage that year with 25% loweroperating costs for advanced software companies than in theU.S. (Graph 15, page 17).

. Instrumentation

. Optics, photonics and laser

. Telecommunication services

. IT services

. Software

. Multimedia

Source: Minis tère du Développement économique, de l'Innovation et de l'Exportation

Table 6 – ICT industriesManufacturing Services

. Microelectronics

. Telecommunications equipment

Graph 13 – Semi-conductor sector dominatesmicroelectronics industry

Source: Répertoire de la microélectronique au Québec, 2008

Assembly services and accessories

(2,907 jobs – 35 companies)

Circuits and specialized systems for design,

inspection and fabrication(730 jobs – 56 companies)

Semi-conductors(4,575 jobs – 13 companies)

Graph 14 – No dominant sub-sector in telecommunications equipment in 2007

Source: Répertoire des entreprises d’équipements de télécommunication au Québec, 2007

Wireline telecommunications30%

Specialized systems and software

36%

Wireless and mobile telecommunications

34%

Employment Breakdown - 2007

17


In 2008, there were approximately 550 multimedia companiesproviding 12,400 jobs, of which half were in video or interac-tive games. In addition to a creative, multilingual labour forceand close ties with specialized training centres, the sector cancount on tax incentives. However, like elsewhere, the past isno guarantee of the future, and in order to remain healthy andvibrant, the industry must keep up with current trends. In thecase of video games, on-line gaming is the wave of the future,as is mobile telephony. Québec is not alone in the frenetic racefor market share. Ontario has been particularly active in thepast three years as it seeks to reduce its reliance on the autoindustry. Québec must therefore wage an all-out war, andindustry stakeholders are calling for the Québec governmentto quickly come up with a policy to support ICT development.

As for telecommunication services, Québec had roughly 550such companies, employing more than 38,000 workers. Thisindustry alone accounted for 45% of the ICT contribution toGDP, a third of the industry’s revenues, and almost 25% of itsjobs. It includes proximity services, popular with consumers:telephony, broadcasting, Internet, data hosting and messaging.Québec must get in on the shift towards wireless, IP (InternetProtocol2) and broadband.3 The key is to invest in order toremain in the game.

Next, IT services accounted for almost 67,000 workers in2008. Seventy-five percent of the companies in this industrywere SMEs with fewer than five employees. The knowledgeeconomy is not just a matter of size, even though we tend toassociate research with big companies and large centres.

117.2

111.8

106.1

100.3

100.0

97.4

94.8

86.3

84.1

83.8

74.5

0 25 50 75 100 125

Japan

Germany

Italy

Netherlands

U.S.

France

U.K.

Ontario

Australia

Canada

Québec

Source: KPMG, Guide to International Business Location, 2008

Graph 15 – Annual operating costs of advanced software companies are lower in Québec - 2008

Graph 15 – Annual operating costs of advanced software companies are lower in Québec - 2008

Index: U.S. = 100

KNOWLEDGE, THE STUFF OF DREAMSBesides aeronautics, biotechnology and ICT, a host of activitieshas been spawned by research and innovation in Québec. Aprime example is composite materials. Companies active inthis segment with the help of research centres develop andmanufacture semi-finished or finished products made of newor recycled plastic resins to which reinforcing elements areadded to increase their properties. There are countless appli-cations, including aeronautics.

A sub-sector of the plastic processing sector, this uniqueindustry generated about 10,000 jobs at the end of the 2000s.Its current success is due to its quality production, ability toinnovate and the flexibility of its plants. To avoid losing itsposition, Québec companies must fend off growingcompetition from BRIC countries (Brazil, Russia, India andChina), particularly China. A strong loonie and higher rawmaterial prices means productivity will have to improve,which requires modernizing production techniques. Researchwill be needed to develop new processes and investments willhave to be made in new equipment. This is a tall order forQuébec companies, which are much smaller than theircompetitors.

Among the promising sectors of the future, clean technology,often referred to as “cleantech,” is truly emblematic. Theexpectations of this sector are huge: a revolution in industrialproduction processes, and green product design and wastedisposal, to name just a few. The goal is to fight climatechange while improving the quality of the environment.

The industry feels that there are now enough cleantechcompanies in Québec to form a cluster just like aeronautics,life sciences and ICT. There are about 1,000 companies withactivities in eight different industries (Table 7, page 18).However, many cities in the world already have such anindustry and are way ahead of us in North America, Europeand even Australia.

The race is on. Research must be funded and processesdeveloped and tested. They must then be commercialized, notan easy task. The sector’s vitality hinges on the availability ofqualified workers and financing. In this regard, clean techno-logies are attracting growing attention from venture capitalinvestors who in the last few years have turned away frombiotechs. Québec is creating a dedicated seed fund that willgive priority to energy and energy efficiency projects, whichgenerate faster ROI, and whose primary objective is to createcompanies that will need less than $15 million to break even.

18



- 450 in environmental management

- 294 in residual materials

- 161 in energy efficiency

Table 7 –

Note: A company may operate in more than one sector. Sources: Minis tère du Développement économique, de l'Innovation et de l'Exportation, Répertoire des entreprises du Q uéb ec 2009

Clean technology companies- 231 in water treatment

- 194 in water conservation and transport- 164 in air management

- 166 in soil and groundwater- 190 in renewable energy

NANOTECHNOLOGY: GUARANTEED THRILLSNanotechnology is also part of the knowledge economylandscape. This science of the infinitely small (nanometre:one billionth of a metre or about one hundred thousandth thediameter of a human hair) is stirring a lot of hope and fear asquestions are being raised about its effect on human andanimal health and the environment. More than $200 billionhas been invested in infrastructures and research projects inthe last decade or so. In the second half of the 2000s, Québechad 175 university researchers and some 40 companiesworking in nanoscience, particularly nanoelectronics,nanobiotechnology and nanomaterials.

Although a small player compared to a leader like Japan,which injects more than $6 billion a year into nanotechnology,Québec believes it stands a fighting chance. The Québecindustry already has a trump card, cellulose nanocrystals,which are extracted from wood, are stronger than steel andwhose properties enhance, for example, the resistance ofvarnish. Beyond this success, the industry has decided tochannel its strengths through the organization NanoQuébecin order to increase cohesion between researchers,manufacturers, financiers and governments. The developmentsare very promising and have multiple applications, includingultra-light and ultra-resistant materials, self-cleaning coatings,rapid diagnosis tools and new targeted treatments for certainillnesses.

According to the MDEIE, Québec is well positioned in termsof cohesion among the players, the public’s receptiveness tonanotechnology, and the availability of highly qualifiedworkers. In this regard, five colleges in the Montréal regionoffer vocational programs with a view to meeting futureneeds, and Québec universities are also offering programs innanoscience. Québec is at a crossroads: it must choose thescientific and technology niches for which it wants to berecognized. It must do more to assert itself and raise its profilein the nanotechnology market, both in Canada andinternationally. In order for this sector to continue growing athome, it must establish its credibility. For its part, NanoQuébechas already identified three avenues: transportation, life scien-ces and electronics/photonics.

IS QUÉBEC’S ECONOMY A KNOWLEDGE ECONOMY?In many respects, the Québec economy could be considereda knowledge economy insofar as it is constantly upping itsrequirements in terms of goods production and service delivery.Doing better, supporting development of cutting-edgetechnology and creating new production or processing methodsare now requirements that all economies must set forthemselves. Training workers and researchers, and promotingand supporting basic and industrial research are indispensa-ble. Investing more and continuously, and supportingcommercialization efforts are just some of the actionsgovernments must take if they want their economies toprosper. Québec is no different.

In this issue, we painted a broad picture of the knowledgeeconomy, which encompasses many more sectors than thosepresented. It is difficult to break down all the activitiesassociated with knowledge and harder still to provide anaccurate picture. Knowledge is in every sphere of activity,which makes the term “knowledge economy” somewhatredundant. Without a doubt, the Québec economy ismodernizing and new indicators are needed to better understandthis trend.

____________________1 Génome Québec: “Genomics is the science that studies the genome. The genome is the entirety of an individual or species’ hereditary information, encoded in

its DNA.”2 Dico Info: IP: Internet Protocol. Protocol used on the Internet to establish the addresses of connected computers.3 Dico Info: Broadband: Communication equipment that transmits at speeds higher than 2 Mbps.

19


INTERPROVINCIAL SHOWCASEEvery province wants to shine

Sources: Statistics Canada and compilation of the Institut de la statistique du Québec

Graph 16 – High tech’s share of provincial exports varies widelyGraph 16 – High tech’s share of provincial exports varies widely

0

5

10

15

20

25

30

35

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

In %

0

5

10

15

20

25

30

35In %

Québec Elsewhere in CanadaCanada OntarioBritish Columbia

Sources: Statistics Canada, Labour Force Survey, and Desjardins, Economic Studies

Graph 17 – Québec stands out in professional, scientific and technical services

Graph 17 – Québec stands out in professional, scientific and technical services

95100105110115120125130135140145

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Index 2000 = 100

95100105110115120125130135140145

Index 2000 = 100

Québec Canada Ontario British Columbia

Employment

EAST-CENTRAL CANADA DOMINATESCanadian high-tech exports reached a record high in 2000, aperformance unmatched since. At the time, tech firms werethe darlings of the economy, before the restructuring of thecountry’s big communication and computer equipmentmanufacturers.

In Canada, Ontario accounted for 50% of the value of high-tech exports, excluding the auto industry, followed by Qué-bec (35.2%) and British Columbia (just 3%). The remainingprovinces accounted for the remainder.

However, the ranking changes when we look at high-techproducts as a proportion of each province’s total merchandiseexports (Graph 16). As such, thanks to its aeronautical industry,Québec topped the list, with high-tech exports accounting for27.7% of the total in 2009. Next in line at 17.1% was Ontario,which has been growing solidly in this regard since 2006. Thisupward trend is largely owed to the expanding aeronauticalindustry but also to the drop in exports of medium-high-techautomotive products. In British Columbia, forestry productsstole the show, accounting for 46.7% of exports, totallyeclipsing high-tech products, which came in at 7.9%.

If we add up high- and medium-high tech products, we findOntario way ahead of the pack, with 63.9% of internationalshipments in these two categories. Québec comes in second(46.6%), once again thanks to aeronautics and aerospace,which accounted for two thirds of the exports in these twocategories.

Research and the knowledge economy are not the exclusive domain of Ontario and Québec. Canada’s eastern and westernprovinces are now also in the game. According to the statistics on exports, employment and research, it looks like everyone isin the race to get the most out of the knowledge economy.

THE LABOUR MARKET IS CHANGING EVERYWHERE,BUT NOT AT THE SAME PACEOne indicator of the knowledge economy is employmentgrowth in professional, scientific and technical services.However, this metric does not present the entire picture, sinceit takes into account neither manufacturing jobs that requirescientific training and knowledge nor researchers who workin manufacturing. Lastly, employment data can be volatile insub-sectors such as this one and should be interpreted carefully.Therefore, in order to get a better picture, we’ve provided agraph of the entire decade (Graph 17).

From 2000 to 2009, the number of professional, scientific andtechnical service jobs1 rose 28.9% in Canada and is nowestimated at 1,202,600 in 2009. At 40.3%, Québec posted thestrongest growth in this sector, bringing the total number ofsuch jobs to 274,500 last year. British Columbia also faredwell, with an increase of 24.7%, followed closely by Ontarioat 23.4%. The latter had over a half million workers in thissector that same year (510,000) whereas British Columbiahad just one third as many (169,000).

The greatest number of workers in this industry is found incomputer system design. Their numbers rose 16.9% in Ca-nada over the past decade. Once again, Québec stood out withan increase of 32.3% while Ontario and British Columbiarecorded respective gains of 11.7% and 5.7%.

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r: revised f: forecasts* Includes the Yukon, the Northwest Territories and Nunavut. Also includes R&D spending by the not-for-profit private sector which is not broken down by province since the 2000 year of reference.Sources: Statistics Canada, and compilation of the Institut de la statistique du Québec

Graph 18 – Ontario leads the way in intramural R&D expenditures (GERD) on a per capita basis

Graph 18 – Ontario leads the way in intramural R&D expenditures (GERD) on a per capita basis

250

400

550

700

850

1,000

2000r 2001r 2002r 2003r 2004r 2005r 2006r 2007f 2008f250

400

550

700

850

1,000

Atlantic Provinces OntarioQuébec PrairiesBritish Columbia Canada*

Constant $ (2002 = 100) Constant $ (2002 = 100)

r: revised f: forecasts* * Includes the Yukon, the Northwest Territories and Nunavut. Also includes R&D spending by the not-for-profit private sector which is not broken down by province since the 2000 year of reference.Sources: Statistics Canada, and compilation of the Institut de la statistique du Québec

Graph 19 – Québec is first in intramural R&D spending (GERD) as a percentage of GDP

Graph 19 – Québec is first in intramural R&D spending (GERD) as a percentage of GDP

0.5

1.0

1.5

2.0

2.5

3.0

2000r 2001r 2002r 2003r 2004r 2005r 2006r 2007f 2008f

In %

0.5

1.0

1.5

2.0

2.5

3.0In %

Atlantic Provinces OntarioQuébec PrairiesBritish Columbia Canada*

RESEARCH, A LIFELINEFaced with intense competition, a wish to diversify theireconomic activities, a desire to grow the resource processingindustry, and a firm intention to beat the competition, all theprovinces have invested in research. Although they don’t tellthe whole story, the comparative data does give us an idea ofthe efforts made in this regard.

In terms of research expenditures per capita in constantdollars (2002) (Graph 18), Ontario led the way for the entireperiod analyzed, coming in at $971 in 2007, a decrease fromthe record high of $1,004 in 2005. Down just a tad from 2006,Québec placed second at $914. British Columbia was next at$585 in 2007 (the most recent data available), followed by thePrairies and the Atlantic Provinces, which fell below theCanadian average ($760 in 2009).

Moreover, we know that Québec and Ontario are particularlystrong in such industries as information and communicationtechnologies (ICT), life sciences and aerospace. As for theother provinces, they all claim to be active in ICT. BritishColumbia, for its part, is also at the forefront in biotechnologyand life sciences, as well as in “viable technologies,” namely,energy management and energy-efficient devices. In Alberta,the health sciences and bio-industries are being encouragedwith an endowment fund of over $1 billion to finance R&D inmedicine, engineering and life sciences. The province is also

banking on chemical and petrochemical products,environmental services and aeronautics to help diversify itseconomy. Besides ICT, Manitoba is also promoting itsaerospace and life science (biotechnology, pharmaceuticaland agricultural research) industries. Not to be outdone, theAtlantic Provinces have strengths in bio-industries (notablyfood processing), biofuels (particularly in Nova Scotia), andadvanced manufacturing and aerospace (New Brunswick).

Noteworthy is the fact that in Québec and Ontario, R&Dexpenditures as a percentage of GDP, exceed the nationalaverage (Graph 19). Québec leads the way in this regard,although British Columbia and the Atlantic Provinces havestepped up their efforts.

All the provinces are trying to develop their knowledgeeconomy even though some have enough natural resources tofill their coffers for decades to come. However, those that docannot afford to rely solely on their mining: they must alsooptimize their use, develop less invasive mining methods andensure they are not depleted.

____________________1 Legal and accounting services, architectural, engineering and related services, specialized design and computer systems design services, managementconsulting services, research and development services, advertising services, etc.

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FORECAST TABLES

2007 2008 2009 2010f 2011f

Ann. var. in % (except if indicated)

Re al gross dome stic product* 2.2 0.5 -2.5 3.6 3.0 Personal consumption expenditures 4.6 2.9 0.4 3.8 3.1 Residential construction 2.8 -3.7 -8.2 13.3 1.7 Business fixed investment 3.3 3.4 -19.9 -1.3 4.6 Inventory change ($B) 12.2 9.0 -2.9 11.2 19.9 Public expenditures 3.2 4.1 5.1 4.4 0.2 Exports 1.2 -4.6 -14.2 8.8 5.1 Imports 5.9 1.2 -13.9 12.6 5.0 Final domestic demand 4.0 2.8 -1.8 4.0 2.5

Othe r indicators 0.0 Real disposable personal income 4.0 3.7 1.2 1.4 3.0 Weekly earnings 4.3 2.9 1.6 3.4 4.2 Employment 2.3 1.5 -1.6 1.7 2.2 Unemployment rate (%) 6.0 6.1 8.3 8.0 7.5 Housing starts (1) 228.3 211.1 149.1 181.7 173.5 Corporate profits*** (2) 1.9 8.0 -32.3 21.9 9.4 Personal savings rate (%) 2.8 3.6 4.0 2.7 3.1 Total inflation rate (2) 2.2 2.3 0.3 2.1 2.6 Core inflation rate** (2) 2.1 1.7 1.7 1.8 1.8 Federal gov’t balance ($B) (3) 15.4 -1.1 -39.9 -38.5 -33.8 Current account balance ($B) 12.8 6.9 -43.5 -24.7 -15.9

Table 8Canada: Major economic indicators

f : forecasts * 2002 $ ** Exc luding the eight most volatile *** Before taxes (1) Thousands of units on an annualized bas is (2) A nnual change(3) National accountsSources: Datastream and Des jardins , Economic Studies

2007 2008 2009f 2010f 2011f

Ann. var. in % (except if indicated)

Québe c Real gross domestic product 2.8 1.0 -1.4 3.0 2.5 Personal consumption expenditures 4.3 3.3 0.6 4.4 2.7 Residential construction 5.2 -2.3 -1.5 4.8 -0.8 Business fixed investment 6.3 -0.8 -13.2 3.4 4.4 Inventory change ($M 2002) 2,057 679 -1,535 550 500 Public expenditures 3.7 6.4 4.9 3.3 1.2 Exports 1.2 -3.4 -11.4 4.2 4.4 Imports 4.0 0.5 -8.6 7.5 3.6 Final domestic demand 4.5 3.3 0.1 4.1 2.3

Ontario Real gross domestic product 2.3 -0.5 -3.4 3.9 2.8 Personal consumption expenditures 3.7 2.6 0.3 3.6 3.0 Residential construction 2.2 -2.3 -8.0 9.6 -3.8 Business fixed investment 3.5 -0.5 -15.3 -1.7 3.9 Inventory change ($M 2002) 5,410 4,334 -4,414 5,150 8,438 Public expenditures 3.7 2.5 3.9 4.8 1.5 Exports 1.5 -6.3 -14.5 9.5 4.0 Imports 4.0 -2.8 -14.4 13.1 4.4 Final domestic demand 3.7 1.9 -1.0 3.9 2.4

Table 9Québec and Ontario: National accounts

f : forecastsSources: Statis tics Canada, Ins titut de la s tatis tique du Québec, Ontario's Minis try of Finance and Des jardins , Economic Studies

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End of period in % Q1 Q2 Q3 Q4 Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f

Ke y rate s Overnight funds 0.50 0.25 0.25 0.25 0.25 0.50 1.00 1.50 2.00 2.50 2.50 2.50

Prime rate 2.50 2.25 2.25 2.25 2.25 2.50 3.00 3.50 4.00 4.50 4.50 4.50

M ortgage rate s 1-year 4.50 3.75 3.70 3.60 3.60 3.60 4.30 4.65 5.05 5.10 5.05 5.25 5-year 5.55 5.85 5.49 5.49 5.85 5.89 6.30 6.40 6.40 6.50 6.60 6.65

Tre asury bills 3-month 0.40 0.25 0.23 0.19 0.29 0.50 1.25 1.80 2.30 2.50 2.50 2.80

Fe de ral bonds 5-year 1.75 2.46 2.58 2.77 2.91 2.33 3.20 3.40 3.50 3.65 3.80 3.90 10-year 2.78 3.36 3.31 3.61 3.57 3.08 3.70 3.90 3.95 4.00 4.05 4.15

Canadian dollar American dollar (CAD/USD) 0.7918 0.8600 0.9353 0.9506 0.9849 0.9393 1.0200 1.0000 1.0200 1.0300 1.0100 1.0400

Canada

S&P/TSX index

Table 11Canada: Major financial indicators

2009 20112010

11,746 (+30.7% )Target: 13,100 (+11.5%)

(range: from 11,800 to 13,800)

f : forecastsSources: Datastream and Des jardins , Economic Studies

Target: 14,330 (+9.4%)(range: from 13,330 to 15,330)

2005 2006 2007 2008 2009

Ann. var. in %

All industries 1.7 1.5 2.8 1.3 -1.0Goods-producing industries 0.9 -2.2 2.3 -0.9 -5.1Services-producing industries 2.1 3.0 3.0 2.2 0.7Industrial production 1.2 -2.6 0.3 -2.2 -7.7Agriculture, forestry, fishing and hunting 2.1 -2.1 -2.3 -3.9 -4.0Mining and oil and gas extraction -8.2 -2.1 8.0 0.7 0.9Utilities 2.7 -0.1 4.2 -0.2 -2.9Electricity prod., transp. and distrib. 3.4 0.3 4.0 -0.3 -2.8Construction industries -0.8 -0.8 11.7 4.6 2.6Manufacturing 1.3 -3.0 -1.0 -2.9 -9.4Wholesale trade 3.6 4.7 4.8 0.8 -4.7Retail trade 3.5 5.7 4.5 4.4 1.5Transportation and warehousing 3.3 1.6 1.8 0.5 -2.9Finance, insurance and real estate services 2.4 3.5 3.3 2.3 2.4Educational services -0.3 1.4 3.4 2.8 1.7Health care and social assistance 0.7 1.8 2.3 2.4 2.8Accommodation and food services 1.8 -1.2 1.6 3.1 -1.5Public administration 1.6 3.2 2.0 2.7 2.5


Table 10Québec: Evolution of GDP by sector

23


2007 2008 2009 2010f 2011f

Annual average in % (except if indicated)

Re al GDP growth – Canada 2.2 0.5 -2.5 3.6 3.0 Atlantic 3.1 1.0 -3.1 2.7 2.6 Québec 2.8 1.0 -1.4 3.0 2.5 Ontario 2.3 -0.5 -3.4 3.9 2.8 Manitoba 3.6 2.0 -0.2 3.0 2.7 Saskatchewan 3.6 4.2 -6.3 3.7 3.0 Alberta 2.5 0.0 -5.1 3.5 4.2 British Columbia 2.9 0.0 -2.3 4.0 2.8

Inflation rate – Canada 2.2 2.3 0.3 2.1 2.6 Atlantic 1.8 2.6 0.1 1.6 2.5 Québec 1.6 2.1 0.6 1.9 2.7 Ontario 1.8 2.3 0.4 2.5 2.8 Manitoba 2.0 2.3 0.6 1.7 2.0 Saskatchewan 2.8 3.3 1.0 0.8 2.2 Alberta 5.0 3.1 -0.1 1.2 2.4 British Columbia 1.8 2.1 0.0 2.0 2.6

Employme nt growth – Canada 2.3 1.5 -1.6 1.7 2.2 Atlantic 1.4 1.2 -0.6 1.6 1.4 Québec 2.3 0.8 -1.0 1.8 1.7 Ontario 1.6 1.4 -2.4 1.9 2.6 Manitoba 1.6 1.7 0.0 2.5 1.8 Saskatchewan 2.1 2.2 1.5 3.0 2.5 Alberta 4.7 2.8 -1.3 1.2 2.8 British Columbia 3.2 2.1 -2.4 1.0 2.5

Une mployme nt rate – Canada 6.0 6.1 8.3 8.0 7.5 Atlantic 9.1 9.3 10.5 9.9 9.6 Québec 7.2 7.2 8.5 7.8 7.2 Ontario 6.4 6.5 9.0 8.7 8.1 Manitoba 4.4 4.2 5.2 5.2 4.9 Saskatchewan 4.2 4.1 4.8 4.5 4.2 Alberta 3.5 3.6 6.6 6.5 6.0 British Columbia 4.2 4.6 7.6 8.0 7.5

Re tail sale s growth – Canada 5.9 3.7 -2.9 8.6 6.7 Atlantic 6.0 5.7 0.6 9.5 5.5 Québec 4.5 4.9 -1.1 10.6 7.3 Ontario 3.8 3.9 -2.5 7.1 6.4 Manitoba 8.9 6.9 -0.4 9.0 6.0 Saskatchewan 13.6 11.8 -0.5 5.0 7.0 Alberta 9.9 0.2 -8.3 9.5 7.5 British Columbia 7.1 1.5 -4.4 8.0 6.5

Housing starts – Canada (thousands of units) 228.3 211.1 149.1 181.7 173.5 Atlantic 12.4 12.2 10.9 14.4 11.3 Québec 48.6 47.9 43.4 48.0 46.0 Ontario 68.1 75.1 50.4 57.6 56.9 Manitoba 5.7 5.5 4.2 5.0 4.3 Saskatchewan 6.0 6.8 3.9 5.5 5.0 Alberta 48.3 29.2 20.3 27.0 28.0 British Columbia 39.2 34.3 16.1 24.0 22.0

f : forecastsSources: Statis tics Canada, Institut de la statis tique du Québec, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies

Table 12Canada: Major economic indicators by prov inces

Knowledge Economy

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