MONTREAL, Sept. 1 /CNW Telbec/ - According to a report prepared by TD
Economics at TD Bank Financial Group, the Quebec economy has withstood the
shocks in the global economy relatively well over the last two years. This
report is an update of a 2007 study entitled Converting Quebec's Strengths
Into Prosperity. Over the last two years, Quebec has been able to make up some
lost ground in terms of per capita income. Despite its enviable position,
Quebec must face some significant challenges before economic prosperity is
assured.
    Even if the province did not grow as fast as the rest of Canada (ROC) in
2007, the Quebec economy performed moderately well in the second quarter of
2008, growing at an annual rate of 2.0%, while the ROC posted no growth. The
Quebec economy also suffered its first significant drop in GDP in Q1-09, one
quarter after the ROC (Q4-08). The job market has held up relatively well in
this recession, with employment retreating by 1.8% since October 2008, as
compared to a 2.6% retreat in the ROC.
    Quebec's superior performance is explained in part by a better balance in
the housing market: the value of existing houses stood firm, which supported
consumer confidence and household consumption. Furthermore, the launch of a
public infrastructure investment program (initially set at $30 billion and
increased to $42 billion) created a situation where many public works projects
were underway or about to break ground when the recession hit.
    "A return to growth later this year will mark the end of a relatively
short and weak recession in Quebec compared to the recessions of the 1980s and
1990s," said Don Drummond, Senior Vice President and Chief Economist at TD
Bank Financial Group. "The current recession should run its course in four
quarters. The last two recessions spanned six and eight quarters,
respectively. Although the recession has been brutal in some parts of the
country - particularly in Ontario, Alberta and British Columbia - so far
Quebec has been able to avoid the worst."
    TD's economists predict that the peak-to-trough change in Quebec's output
will be -2.3%, as compared to -5.3% for the ROC. Total job losses are likely
to reach 110,000 in Quebec, or 2.8%. The last two recessions produced job
losses of 3.3% (1990-1992) and 7.3% (1981-1982).

    Challenges ahead

    Even if Quebec took a softer blow from this recession, the province still
faces many challenges in the medium and long term, such as competition from
the United States and emerging economies. The threat of a wider prosperity gap
against other provinces still looms, and the same barriers keep it from
catching up, in particular demographics and the labour force, and
productivity.
    The scale of some challenges, such as demography, has abated to some
degree since our 2007 report. But others, such as international competition
and the lower participation rate of older cohorts, have grown, not to mention
new challenges such as the budget deficit. In addition, the old foundations of
manufacturing and export sector competitiveness, such as a low Canadian dollar
and cheap energy, will continue to erode.
    "Health costs, below-market electricity rates, the cost of higher
education, and $7-a-day childcare services are areas where the cost-benefit
analysis will have be re-evaluated in the context of ever-increasing budgetary
challenges" said Mr. Drummond. "Particularly since the new budget challenge
will limit Quebec's margin of manoeuvre in the medium term, and measures are
required to get back to balanced budgets."

    Encouraging factors

    Paradoxically, some of the very things holding Quebec back from increased
prosperity can create favourable conditions for the province. The imminent
demographic crisis and a shrinking active population create an obligation to
see results in terms of immigration, labour mobility and participation as well
as education. Pressure from foreign competitors holds the promise of greater
productivity for exporters looking to succeed and expand.
    Pressures to reduce greenhouse gas emissions and have businesses adopt
environmental measures will drive up the costs of production and utilization
of fossil fuels. As a result, demand will flow to sources of clean energy, an
area where Quebec is particularly well positioned. In addition, Quebec can
capitalize on the massive public infrastructure investment program and the
progressive elimination of capital taxes by 2011 to foster economic growth.
    "Quebec certainly has the tools it needs to enhance economic prosperity,"
concludes Mr. Drummond. "Before the current recession, it was difficult to
imagine the province could withstand this storm so aptly. And the coming
recovery may very well create opportunities for repositioning Quebec for the
younger generations and those still to come."
    The complete report, entitled The Road Travelled and Road Ahead: An
Update on the Quebec Economy is available at:
http://www.td.com/economics/special/pg0909_que.pdf. The original 2007 study,
entitled Converting Quebec's Strengths Into Prosperity, is available at
http://www.td.com/economics/special/db0407_que.pdf .

For further information: Don Drummond, Senior Vice President and Chief
Economist, TD Bank Financial Group, (416) 982-2556, don.drummond@td.com;
Pascal Gauthier, Economist, TD Bank Financial Group, (416) 944-5730,
pascal.gauthier@td.com; Annick Laberge, Senior Manager, Public Affairs, TD
Bank Financial Group, (514) 289-1588, annick.laberge@td.com