Quarterly Monitor of the Canadian ICT Sector

First Quarter 2009

Last Update: June 2009

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Gross Domestic Product

ICT output declined…

This period marks a second consecutive quarter of declines for both Canada's ICT sector output and all Canadian industries, down by 0.8% and 1.7%, respectively. Over the past five quarters, Canada's ICT sector output has declined by a marginal 0.2% compared to the 2.5% drop recorded in the Canadian economy.

D

Although both ICT manufacturing GDP (-2.8%) and Canadian manufacturing GDP (-6.9%) fell in the first quarter of 2009, the drop observed in the latter was two and a half times faster and the largest recorded for the sector in the analyzed period. In fact, Canadian manufacturing GDP has continuously declined since the second half of 2007 and has been trending down since the second quarter of 2006. On the other hand, the declining trend in ICT manufacturing GDP is only recent, as it began at the end of 2007.

For a second consecutive quarter, GDP for both ICT* and overall Canadian services declined, each down by 0.5% this period. Compared to the manufacturing industries, these recent declines have not affected the long term performance of these categories. Specifically, each category has been trending up since the beginning of 2002 and has grown by 1.0% (ICT) and 0.3% (all Canadian services) over the last six quarters.

D

GDP values fell in all key ICT manufacturing industries this last quarter. The largest drops were posted by the electronic components (-9.7%) and the computer and peripheral equipment (-8.7%) industries. While the former industry has only recently been declining (over the last three quarters), the latter has been falling uninterruptedly since the first quarter of 2007. In addition, the drops in electronic components have been getting progressively larger. Over the last year, GDP in the instruments industry has fallen, and is now down by 1.4%. Despite the decline recorded by the communications equipment industry (-1.0%) this past quarter, this industry's GDP has remained relatively stable over the last five quarters compared to the other key industries (see annex for more details).

D

Even though over half of the ICT services industries grew this period, overall ICT services GDP declined once more. The ICT wholesaling industries (-10.1%) were solely responsible for this drop, as the exclusion of this category would have resulted in a 0.2% increase in the ICT services industries.

In the first quarter of 2009, the software and data processing services industries both declined by 0.4%, while the computer systems design (0.1%) and telecommunications services (0.4%) industries grew. In general, the telecommunications services, computer systems design and software industries have been growing since the beginning of 2002, but over the last five quarters growth has slowed down considerably for the software industry. The data processing services industry has exhibited little or no changes since the beginning of 2006.

D

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

Manufacturing Shipments

ICT manufacturing shipments are down…

Although ICT manufacturing shipments performed well throughout 2008, they fell significantly (-8.5%) at the beginning of 2009. In fact, levels fell close to those reported back in the second quarter of 2003, the lowest value for the analyzed period. Canadian manufacturing shipments declined drastically these past two quarters, with a 12.4% drop this past period. Over the last five quarters, ICT manufacturing shipments have declined by only 2.6% compared to the sharp drop (-16%) experienced by Canadian manufacturing shipments.

D

As the economic recession continues, further declines in Canadian and ICT manufacturing shipments should be expected.

…in all key manufacturing industries.

D

All key ICT manufacturing shipments exhibited significant declines this past quarter. Not only did shipments in computer and peripheral equipment experience the largest drop (-26%) in the first quarter of 2009, they also fell to their lowest recorded levels. Moreover, this industry's shipments have been falling since the end of 2006, down 50% since then. For a third consecutive period, shipments of electronic components declined, down by 17% at the beginning of 2009. Over the last nine quarters, shipments of computer and peripheral equipment and electronic components have followed each other closely. Following strong growth in the last half of 2008, shipments of instruments (-11.1%) and communications equipment (-3.6%) declined this past period. Since the second quarter of 2008, only shipments of communications equipment (12.2%) have increased.

Employment^*

ICT employment declined…

The number of employees in both the ICT sector (-1.3%) and the Canadian economy (-1.6%) fell at the beginning of 2009. This marks a second consecutive quarter of declining employment in the Canadian economy, with no other drops having been observed in the analyzed period. Over the last six quarters, ICT sector employment has fluctuated considerably and has fallen by 1.5%, compared to a 0.6% drop in the Canadian economy.

D

This past quarter, the number of employees in Canadian manufacturing (-4.7%) continued to decline at a faster pace than those employed in ICT manufacturing (-3.5%). In fact, Canadian manufacturing employment has declined uninterruptedly since the second quarter of 2006. In addition, since the beginning of 2002, ICT and Canadian manufacturing employment have fallen by 17% and 20%, respectively.

Employment in the ICT services industries (-0.7%) and in the Canadian services sector (-0.6%) declined at the beginning of 2009. This is the first drop in employment for the Canadian services sector for the analyzed period. Over the last six quarters, the number of employees in the ICT services industries has deviated from its previous growing trend and has fallen by 1.4% since the end of 2007.

D

D

For a second consecutive quarter, employment in the computer and peripheral equipment industry declined, down by 9.6% this period. Until this drop, employment in this industry had remained relatively stable for the last three years. Following the large growth posted at the beginning of 2008, employment in the communications equipment industry declined thereafter, down by 6.1% this last quarter. While employment in the electronic components industry (-5.5%) fell this period, instruments employment (1.7%) grew. In fact, these two industries have been moving in opposite directions over the last four quarters.

D

Not only did the data processing services industry (-11.1%) post the largest drop this period, it also exhibited considerable fluctuations since the end of 2007. That is, this industry's employment increased by 20% from the last quarter of 2007 to the third quarter of 2008, where its value peaked, and thereafter fell by 16%. Both the computer systems design (-0.7%) and software (-0.9%) industries declined in the first quarter of 2009, although, in nominal terms, the former industry fell by three times as much. Nevertheless, both these industries have been relatively stable since the second half of 2007. For a third consecutive quarter, telecommunications services employment grew, up by 1.9% this past period. Even so, this industry has fallen by 2.4% since the last quarter of 2007.

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

Exports of Goods

Exports of ICT declined…

Although exports of ICT goods performed well throughout 2008, they declined by 7.6% at the beginning of 2009, demonstrating that this sector was no longer sheltered from the economic downturn. Exports of Canadian goods continued to decline, down by a substantial 19% in the first quarter of 2009, which reverted levels back to those reported in 2003. While this past period's performance has caused Canadian exports to fall by 18% since the beginning of 2008, ICT exports grew by 1.9% within the same period.

D

…led by a strong drop in computer and peripheral equipment.

For a second consecutive quarter, exports of computer and peripheral equipment declined, down by 10.2% at the beginning of 2009. This was the largest drop in exports, in terms of growth rates and nominal contributions. Despite the large fluctuations exhibited by this good, a declining trend can be observed since the beginning of 2002.

Over the past five quarters, exports of electronic components have experienced considerable fluctuations and fell by 7.1% this period. Nevertheless, this product group has grown by 4.3% since the beginning of 2008 and has been trending up since its lowest recorded level in the third quarter of 2006.

Instruments exports declined once more, down by 3.9% in the first quarter of 2009. Just recently, this product group has exhibited a declining trend, falling by 5.4% since the beginning of 2008.

Following three consecutive quarters of increases, exports of communications equipment fell, down by 3.5% this period. Even though 60% of total communications exports originate from wireless products, the increase posted by this group (4.2%) was not enough to offset the significant decline in wired exports (-12.8%) (see annex for more details).

D

Exports to the US declined…

At the beginning of 2009, ICT exports to the US fell by 7.9%, causing the US share in Canadian ICT exports to decline to 67%. These drops occurred after recording three consecutive quarters of strong export growth and an increasing export share to this region.

While ICT exports to Asia Pacific economies (9.9%) and to "Other Countries" (0.2%) grew in the first quarter of 2009, they declined by 17% in the EU-25. Although exports to Asia Pacific economies increased this past quarter, ICT exports to the Asia Pacific economies and the EU-25 have been trending down since the beginning of 2007, and are now 16% and 33% lower. Conversely, exports to "Other Countries" have more than doubled since the beginning of 2002. Generally, the shares of exports to the EU-25 are somewhat larger than the shares to the Asia Pacific economies, but this past quarter each region constituted 11.0% of Canadian ICT exports. Over the last six quarters, the share of exports to "Other Countries" has increased considerably. Specifically, this share now stands at 10.6% compared to 8.7% at the end of 2007.

D

Annex - Focus on the Communications Equipment Industry

The communications equipment industry (subdivided into wired and wireless groups) merits further evaluation in order to understand this industry's recent developments.

The wireless industry has dictated GDP growth since 2006…

Amongst the key ICT manufacturing industries, the communications equipment industry (-1.0%) experienced the smallest decline in GDP in the first quarter of 2009 and has remained relatively stable over the last five quarters. Further analysis indicates that GDP in both the wired (-3.5%) and wireless (-0.2%) industries fell this period. Even though the wired industry has been falling over the past year, the drops have slowed down considerably these last two quarters. The decline posted by the wireless industry this period is not characteristic of this industry, as this is the first drop since the one recorded at the end of 2005. The beginning of 2006 is a pivotal point for the communications equipment industry since it marks the shift from wired to wireless. Since then, the wireless industry has nearly doubled in value, while the wired industry has contracted by almost half. Thus, the overall movement of communications equipment is dictated by the wireless industry.

D

…as well as the fluctuations in shipments since 2007.

Shipments of wired (-9.9%) and wireless (-0.4%) goods declined this past quarter, which led to a drop of 3.6% in shipments of communications equipment. Even though wired shipments constituted only 31% of total communications equipment shipments, this category was responsible for 93% of the industry's overall decline that period. While the wireless industry has depicted exceptional growth since the end of 2006, the wired industry has been trending down since the beginning of that year. In 2007, the wireless industry became the leading shipper of communications equipment, and began to direct the overall movement of this industry.

D

Wireless exports have been trending up over the last seven quarters…

Following three consecutive quarters of growth, communications equipment exports fell by 3.5% in the first quarter of 2009, attributable to a decline in wired exports (-12.8%). Conversely, wireless exports grew by 4.2% this period, compared to the 16% growth it posted at the end of 2008. Since the second half of 2007, exports of wireless goods have been trending up, whereas those of wired products have been falling. Overall, communications equipment exports had strong performance throughout 2008 and have grown by 6.9% since the first quarter of 2008.

D

Since 2006, the focus of Canada’s communications equipment industry has shifted from production of wired to wireless equipment. Specifically, wired equipment once dominated this industry. In the first quarter of 2006, it accounted for 53% of value-added (GDP), 62% of shipments and 70% of exports of Canadian communications equipment. As wireless technology took off, these ratios shifted. Consequently, in the first quarter of 2009, wireless equipment constituted 77%, 69% and 59% of the same ratios.

Notes, Definitions and Sources

Contact: Sylvain de Tonnancour, 613-954-2971