Quebec’s economy is worsening

Montreal, May 29, 2007 – Despite warnings from economic and public affairs observers, Quebec continues to watch as its economic situation deteriorates in comparison with its competitors, according to the latest available data. In an Economic Note published by the Montreal Economic Institute (MEI), Marcel Boyer, the Institute’s Vice President and Chief Economist, says it is time to end Quebec’s relative underperformance in economic development, demographic growth and job creation. He concludes that courageous reforms are needed, relying on “greater individual responsibility, the liberalization of prices, and competition in the production and distribution of public services.”

The socio-economic predicament Quebec suffers from, including problems in health services, education, infrastructure, support for cultural industries and sustainable development, results largely from Quebec’s economic underperformance over the last 25 years.

Economic growth

In that period, the share of Quebec’s real GDP in the Canadian economy has slid by nearly 3%. The growth rate in the last seven years has averaged 2.5% in Quebec and 3.3% in the rest of Canada. If this pace is maintained over the next 25 years, Quebec will account for just 17.5% of the Canadian economy.

Some public affairs analysts are wrong in taking comfort from the fact that real per capita GDP growth in Quebec since 1981 is close to that in the other provinces, with respective rises of 51.1% and 53.6%. Given the disparity in respective GDP levels, this widens the gap in living standards. Thus, the difference in real GDP per capita between Quebec and the rest of Canada has grown by 68%, climbing from $3,652 in 1981 to $6,137 in 2006 (in constant dollars).

Moreover, the share of private investment in GDP is lower in Quebec than in the rest of the country, by an amount of $6.8 billion in 2006. This suggests a continual decline in Quebec’s capacity for production and innovation, and thus eventually in its competitive position. This situation is all the more disturbing in that three jobs out of five in Quebec depend on outside markets, with two-thirds of this on international markets.

Demography

Quebec is losing population, especially young people. Despite a recent jump in births, Quebecers are not having many children, and Quebec is not sufficiently attractive to immigrants in economic terms in comparison with its main competitors to compensate for this low birth rate.

In the last 25 years, the population aged 15 and under has fallen 11.8% in Quebec while rising 6.8% in the rest of Canada and 20.3% in the United States. The aging of the population is also much faster in Quebec than elsewhere in North America.

Quebec can expect to have trouble maintaining the quality of public and social goods and services at a level comparable to the rest of Canada. Many types of infrastructure, such as a mega-hospital or a highway, cost just as much even if the population is declining.

Employment

In the last 25 years, Quebec has created 18.8% of the jobs in Canada but only 16.6% of the full-time jobs. Quebec’s disappointing economic performance in terms of job creation has a negative impact on its demographic growth. In our open economy, worker mobility, immigration and the birth rate are influenced by the economic outlook.

This overly weak job creation also leads many individuals to retire early or to give up looking for work, with the result that Quebec’s high official unemployment figures do not take account of overall employment rates, which stood at 59.5% in Quebec and 63% in the rest of North America from 2000 to 2006. The true unemployment rate may thus be closer to 11%. Quebec’s unenviable situation gets even worse when the number of employment insurance recipients and average weekly compensation are compared to the rest of Canada.

Remedies

Quebec must become more efficient and more innovative than its main competitors. The reforms that need to be implemented must rely on three principles: (1) greater incentives for the entire population to take part in creating wealth; (2) liberalization of prices and development of markets in every sector, including energy, health care and education; (3) a greater opening to competition in the production and distribution of public services.

The Economic Note titled Quebec’s disappointing economic performance in the last 25 years was prepared by Marcel Boyer, Vice President and Chief Economist of the Montreal Economic Institute. He also holds the Bell Canada Chair in Industrial Economics at the University of Montreal.

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Information and interview requests: André Valiquette, Director of Communications, Montreal Economic Institute, Tel.: 514 273-0969 ext. 2225 / Cell: 514 574-0969 / E-mail: avaliquette@iedm.org