Quarterly Monitor of the Canadian ICT Sector

Second Quarter 2006

Publication Date: October 2006

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Gross Domestic Product

ICT output growth continues...

Canada’s ICT sector output (GDP) expanded by 1.4% in the second quarter of 2006, over three times as fast as the 0.4% growth experienced by 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 26% higher in the second quarter of 2006 than it was at the end of 2001. This compares favourably with growth of 14% for the Canadian economy, as a whole, over this period. Overall, ICT sector performance has been impressive, and it has grown by 104% since the first quarter of 1997. This is 2.8 times the growth rate of the Canadian economy, as a whole, which grew 37% over this same period.
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ICT manufacturing GDP was up 2.6%, while Canadian manufacturing GDP decreased by 0.9% in the second quarter of 2006. In fact, ICT manufacturing output has expanded for eight consecutive quarters since the second quarter of 2004. The longer term trend is also positive, and since the end of 2001 the ICT manufacturing industries have grown by 45%. Since the beginning of 1997, real output in the ICT manufacturing sub-sector has grown by 61%, compared to 28% growth in the entire Canadian manufacturing sector.

The ICT services sub-sector grew by 1.1% in the second quarter of 2006, faster than the 0.8% growth experienced by overall Canadian services GDP. Another trend indicates that output in the ICT services industries and the Canadian services sector, as a whole, grew by 22% and 15%, respectively, from the last quarter of 2001 to the second quarter of 2006.
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Services industries in the ICT sector have experienced uninterrupted growth since the first quarter of 1997, and output in the second quarter of 2006 was more than double the first quarter 1997 level (124% growth), far outperforming overall Canadian services, which had grown 41% over the same period.

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Growth in the electronic components (11.3%) and the instruments (3.0%) industries contributed to the overall growth in ICT manufacturing this quarter. In contrast, the computer equipment and communications equipment industries declined by 2.3% and 1.4%, respectively.

Growth of 0.5% in the telecommunications services industries was the main contributor to growth in ICT services this quarter. In fact, growth in this area has been fairly consistent since the first quarter of 1997, and GDP had grown by 84% in the second quarter of 2006.

The software and data processing services industries experienced the largest growths this quarter, 3.1% and 3.0%, respectively. Overall, a positive trend in growth can be observed for the software industry since the fourth quarter of 2003. After four quarters of decline in 2005, the data processing services industry reported growth for a second consecutive quarter. The computer systems design industry continues to grow at a steady pace, 0.6% this quarter.
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Manufacturing Shipments

ICT manufacturing shipments are up...

Shipments of ICT manufactures grew by 5.2% this quarter (the largest growth experienced since the third quarter of 2003), while Canadian manufacturing shipments on the whole declined by 0.6%. In fact, ICT manufacturing shipments have continued to increase since the third quarter of 2005.

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Overall, Canadian ICT manufacturers' shipments have been growing since the first quarter of 2005. Average growth over this period has been at 1.8% per quarter, and shipments in the second quarter of 2006 were 9.5% higher than in the first quarter of 2005.

...with exceptional growth in electronic components manufacturing.

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Strong growth in electronic components shipments (+25.3%) was the principal factor behind growth in shipments this quarter, the highest growth rate recorded to date. Instruments shipments also increased this quarter by 3.2%, and have exhibited an increased trend in the value of shipments since 1997. Computer and peripheral equipment shipments and communications equipment shipments were down this quarter by 8.4% and 3.0%, respectively. The computer and peripheral equipment industry has experienced a downward trend since the beginning of 2001, while the communications equipment industry has remained relatively stable since the second quarter of 2005.

Employment ^*

ICT employment increases...

Employment in the ICT sector grew 0.7% this quarter, faster than overall Canadian employment growth of 0.6%.
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Both Canadian manufacturing employment (-0.5% growth) and ICT manufacturing employment (-0.4% growth) declined in the second quarter of 2006. While ICT manufacturing employment recovered from its sudden drops in the first quarter of 2001 to the second quarter of 2002, declines have remained slow and steady. ICT manufacturing employment is 3.8% below its second quarter 2002 level, while employment in Canadian manufacturing industries on the whole has decreased 5.2% since then. However, ICT manufacturing employment has been fairly stable since the end of 2004.

The ICT services sub-sector performed better than the manufacturing sub-sector, and grew by 0.9% this quarter. ICT services employment has shown an overall upward trend since the first quarter of 2002, and is now 7.8% above its first quarter 2002 level.
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The decline in employment for the ICT manufacturing sub-sector is largely attributed to the 9.8% drop experienced by the electronic components industry this quarter. Despite the drop, the remaining manufacturing industries recorded employment gains this past quarter. The most significant gain was experienced by the instruments industry (2.9%), followed by the computer equipment industry (2.6%). Although communications equipment employment was up this quarter (0.9%), it is considerably less than the 6.3% growth recorded in the first quarter of 2006.
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Employment in the software and data processing services industries was up this quarter by 4.5% and 3.0%, respectively. In fact, software employment has exhibited a positive trend since the third quarter in 2004. On the other hand, employment in telecommunication services was down by 0.6% and heavily impacted the overall growth in ICT employment services of 0.9%. Employment in computer systems design services remained relatively constant this quarter.

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

Exports of Goods

Exports of ICT goods contract...

Total ICT exports were down by 4.5% in the second quarter of 2006, almost double the decrease in overall exports of Canadian goods (-2.5%). The longer term trend for exports of Canadian ICT goods has been positive. Since reaching a low in the fourth quarter of 2003, exports of ICT goods from Canada have grown by 23%, an average quarterly growth rate of 2.1%.

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... experienced losses throughout all product groups.

ICT exports for all four product groups declined this quarter. The largest losses were in exports of electronic components and instruments, which decreased by 9.8% and 6.5%, respectively. Following the significant export decrease of the fourth quarter of 2000, exports of electronic components stabilized somewhat. In contrast, instruments exports have grown steadily since the first quarter of 1997, and increased by 90% between the first quarter of 1997 and this quarter.

The main contributor to the decrease in ICT exports, in terms of value, were exports in communications equipment, which fell by 5.1% this quarter. Specifically, both exports of wired and wireless products fell this quarter, but wireless exports experienced its third drop in a row.The longer term trend still indicates that communications equipment exports have grown since the last quarter of 2003.

Computer equipment exports fell by 2.2% this quarter, and although negative, displayed a vast improvement from the drop in exports of 12.2% last quarter. The longer term trend for this good resembles that of electronic components, relative stability since the second quarter in 2003.
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Market for ICT goods continues diversifying...

While the United States remains Canada's most important trading partner for ICT goods, the US share as a destination for Canadian ICT exports has steadily declined since the second quarter of 2000, when the share was some 85%. As of the second quarter of 2006, this share stood at 63% of total ICT goods exports (including re-exports).

The strongest growth markets for Canadian ICT exports continue to be the EU-25 and Russia and the category 'other' (which includes the Middle East, Africa, and Latin American countries). Exports to these two markets have grown by 112% and 104%, respectively, since the second quarter of 2002. This quarter, these two market groups combined accounted for around 23% of Canadian ICT exports. Also, ICT exports to Asia-Pacific economies this quarter increased by 3.5%, and account for 12.6% of total exports. In fact, exports to this market have doubled since the first quarter of 2002. In comparison, ICT exports to the remaining markets declined this quarter.

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Notes, Definitions and Sources

Contact: Sylvain de Tonnancour, (613) 954-2971