Current economic conditions

The growing impact of the resource sector, especially energy and mining, was reflected in several inter-connected trends which became more pronounced over the summer, according to an assessment of economic growth conditions in the October edition of Canadian Economic Observer.

Commodity prices hit new records (notably oil, gas and copper), boosting our exports and lifting the stock market to near an all-time high. This helped send the loonie to over US 86 cents.

These developments have been building in prices and financial markets over the last two years. Now, they are having an increasing impact on the real economy of output, jobs and investment.

Energy and mining alone accounted for over half the growth of gross domestic product in July, and this did not include the steady pickup in business investment which is being powered by resources. In September, non-residential building permits broke their previous record set earlier this year.

Nowhere have resources flexed their strength more than in exports. Both energy and industrial goods exports (led by metals) surpassed autos this summer, rising to second and third place after machinery and equipment. As recently as early 2004, energy was in fourth place, almost 10 percentage points below the share of autos.

Energy was lifted mostly by higher prices, although output rose sharply in July and appears poised to increase rapidly through year-end. Mining was boosted by strong growth in demand from China for copper, nickel, potash and iron ore.

Meanwhile, auto exports have slipped in absolute terms so far this year, partly due to the higher Canadian dollar and gasoline prices. But the growth of resource earnings has more than compensated for this loss.

There are solid reasons to expect the predominance of energy and mining to continue this fall. In September, the expansion of North America's largest aluminium smelter was completed in Quebec, while the Voisey Bay nickel operation began ahead of schedule. The oils sands, hampered all year by production problems, returned to near full output. In November, the White Rose oil platform off Newfoundland will start production. Both projects will add about 100,000 barrels a day to Canada's output, worth nearly $5 billion a year at current prices.

Definitions, data sources and methods: survey numbers, including related surveys, 1301, 1901, 2201 and 2306.

The October online issue of Canadian Economic Observer, Volume 18, no. 10 (11-010-XIB, $19/$182) is now available.

Visit Canadian Economic Observer's page online. From the Canadian Statistics page, choose National Accounts, then click on the banner ad for Canadian Economic Observer. For more information, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis Group.