Quarterly Monitor of the Canadian ICT Sector

Third Quarter 2005

Publication Date: December 2005

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Gross Domestic Product

ICT output growth continues...

Canada’s ICT sector output (GDP) expanded by 1.1% in the third quarter of 2005, keeping pace with growth in the Canadian economy as a whole. Economic activity in the ICT sector has grown almost continuously since the last quarter of 2001, and the ICT sector’s output was 18% higher in the third quarter of 2005 than it was at the end of 2001. This compares favourably with growth of 12.7% for the Canadian economy as a whole over this period. Overall, the performance of the ICT sector has been impressive as it has grown by 96% since the first quarter of 1997, almost three times as much as the Canadian economy (+37%).
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ICT manufacturing industries grew by a modest 0.3% in the third quarter of 2005, while Canadian manufacturing as a whole grew by 0.7%. After a decline in the first quarter of 2004, ICT manufacturing output has expanded for six consecutive quarters. Since the end of 2001, the ICT manufacturing industries have grown by 36%, driven by sharp increases of 98% and 60% in the production of electronic components and communications equipment, respectively. Since the beginning of 1997, output in the ICT manufacturing sub-sector has grown by 53%, compared to 34% growth in the entire Canadian manufacturing sector.

Growth of 1.2% in the ICT services industries was observed in the third quarter of 2005, a growth rate that was higher than the 0.9% growth experienced by Canadian services in general. Recent growth in ICT services has been similar to growth in overall services, and output in the ICT services industries grew by 15% between the last quarter of 2001 and the third quarter of 2005, compared to 12% growth in all Canadian services industries over the same period.
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Services industries in the ICT sector have experienced almost uninterrupted growth since the first quarter of 1997, and output in the third quarter of 2005 was more than double the first quarter 1997 level (110% growth), far outperforming overall Canadian services, which were up 37% over their 1997 level.
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Third quarter growth in the ICT manufacturing sub-sector was primarily driven by strong gains in the wireless communications equipment and electronic component industries, which grew by 9.1% and 3.5%, respectively. Growth in the wireless communications equipment industry this quarter brought total growth in the industry to 145% since the fourth quarter of 2001. Output in the wired communications equipment industry declined, contracting by 12.5% this quarter. After contracting by nearly 9% last quarter, real output in the computer and peripheral equipment industry recovered to post a moderate 2.3% increase in the third quarter of 2005.

In the ICT services sub-sector, there was 2.8% growth in the software industry this quarter, marking this industry's seventh consecutive quarter of growth. Since the first quarter of 1997, this industry has shown the most robust growth of all Canadian ICT services, more than tripling in size (229% growth.)

The telecommunications services industries are the largest component of ICT services, and growth in the ICT services sub-sector this quarter was largely due to 1.7% growth in telecommunications services GDP. These industries have grown 16% since the last quarter of 2001 and by 86% since the first quarter of 1997. Computer systems design services GDP was stable this quarter, while data processing services contracted for a third consecutive quarter, with GDP in this industry decreasing by 2.1%.
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Manufacturing Shipments

ICT manufacturing shipments are down...

Shipments of ICT manufactures contracted by 2.3% this quarter, while Canadian manufacturing shipments on the whole were up by 1.1%. After reaching an eight year low in the second quarter of 2003, ICT manufacturing shipments are now above their 1997 level.

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Overall, Canadian ICT manufacturers' shipments have been trending up since the second quarter of 2003. Average growth over this period has been at 2.0% per quarter.

...with contractions in all industries except communications equipment manufacturing.

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Contractions in the commercial and service machinery (-10.9%), computer and peripheral equipment (-10%) and instruments (-8.3%) industries were the principal causes of the third quarter contraction in shipments of ICT goods. A gain of 10.3% in wireless communications equipment shipments, which contributed to 5.8% growth in total communications equipment shipments, was insufficient to offset these losses. Communications equipment shipments have been increasing overall since the second quarter of 2003, at an average rate of 4.9% per quarter.

Employment ^*

ICT employment decreases...

Following four consecutive quarters of growth, ICT employment was down by 1.8% this quarter, bringing ICT employment to its lowest level since the second quarter of 2003. Canadian employment overall was up by a moderate 0.4% this quarter.
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While employment in Canadian manufacturing overall shrank by 0.6%, ICT manufacturing employment contracted by a steeper 1.2% this quarter. ICT manufacturing employment has been in fairly steady decline since the second quarter of 2002, which is when the steep employment declines in the ICT sector began to slow down. ICT manufacturing employment is 4.5% below its second quarter 2002 level, while employment in Canadian manufacturing industries on the whole has decreased 4.8% since then.

Employment also contracted in the ICT services sub-sector, decreasing by 1.9% this quarter. Despite the sharp contraction this quarter, ICT services employment has shown an overall upward trend since the second quarter of 2002. ICT services employment in the third quarter of 2005 was 1.7% above its second quarter 2002 level.
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The largest employment losses in the ICT manufacturing sub-sector came from contractions in the commercial and service machinery (-2.7%), computer and peripheral equipment (-3.9%) and instruments (-1.2%) industries. This marks the fifth consecutive quarterly employment loss for the computer and peripheral equipment industry, where employment is now 45% below its first quarter 1997 level, and well below its peak in the fourth quarter of 2000. After three consecutive quarters of growth, employment in the communications equipment industries was stable this quarter. Employment in the electronic component industry was also stable.
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Employment losses in the ICT services sub-sector were led by telecommunications services, which contracted by 4.1% this quarter, following four consecutive quarters of growth in these industries. Employment contracted by 2.8% in the data processing services industry, while remaining stable in the computer systems design industry. Software employment, by contrast, showed strong 3.3% growth this quarter. Employment in this industry has shown a marked upward trend since the fourth quarter of 2003, and has grown by 17% since then.

^{*See note 1 at the end of the page. back}

Exports of Goods

ICT goods exports contract...

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ICT goods exports were down 3.8% in the third quarter of 2005, compared to a 4.4% increase in overall Canadian goods exports. While exports were down this quarter, the longer term trend for Canadian ICT goods exports has been positive. Since reaching a low in the fourth quarter of 2003, ICT goods exports from Canada have grown at an average quarterly rate of 2.9%.

... with positive medium-term trends for some exports.

Instruments are growing in importance as one of Canada's leading ICT exports. Despite a 3.9% decrease in exports of these goods this quarter, instruments exports have grown by 79% since the first quarter of 1997, and were less affected by the downturn of 2001 than were exports of many other ICT goods.
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The contraction in exports this quarter was largely due to an 11.5% decrease in electronic components exports and a 12.2% decrease in exports of commercial and service machinery, both of which are major contributors to total Canadian ICT goods exports. A 4.4% decline in wired communications equipment exports contributed to an overall 2.2% contraction in communications equipment exports, another major component of Canadian ICT exports. An increase of 7.1% in computer and peripheral equipment exports was insufficient to completely balance out these losses.

Notes, Definitions and Sources

Contact: Nikola Sydor-Estable, ICTB, (613) 948-2779