10,000 PS jobs on the line: report
Spending restraints will take toll on region over next three years, Conference Board says
BY BERT HILL, THE OTTAWA CITIZENAPRIL 8, 2010
Hold on to your hats. The economic recovery in the capital region could be brief.
The Ottawa-Gatineau economy could lose almost 10,000 government jobs over the next three years as federal spending restraint casts a pall over the region.
In a report Wednesday, the Conference Board of Canada predicted the public service decline could be the biggest since 1991-98 when 19,000 federal government jobs were lost to layoffs, early retirement and other incentives to leave.
The report is the first to try to quantify the restraint program announced in last month's federal budget. The government ordered departments to live within current spending over the next three years and then increase spending over the following two years by just 1.5 per cent annually.
"Dark clouds loom on the horizon,'' said the report.
"A federal government departmental spending freeze will constrain growth in the area's most important sector -- public administration. Accordingly, real GDP growth is forecast to slow to 2.1 per cent in 2011," after reaching 2.8 per cent this year.
As a result, job prospects for new graduates and for new arrivals to the capital will not be bright.
The report predicts employment will grow by one per cent this year to 666,000, but just 0.5 per cent next year to 669,000. With restraint in place, it predicts overall job growth of only about 1.5-per-cent annually over the next few years.
Ottawa-Gatineau will rapidly lose its attractiveness to other Canadians and could be exporting residents to other cities and provinces in 2011 and 2012. The report predicts net migration to drop from 13,000 last year to just 5,000 this year with only the arrival of new immigrants from outside Canada holding firm.
The result is that while the local unemployment rate will likely rise from 5.7 per cent in 2009 to 5.9 per cent this year, it will retreat to 5.5 per cent during the balance of the restraint period as fewer people arrive looking for work.
"We think there will be some layoffs because Treasury Board has said that it will eliminate some programs that are of a lower priority. However, we think most of the reductions will be by attrition. As public servants retire or resign, they will be less likely to be replaced," Alan Arcand, a Conference Board economist, says.
"We don't think the results for the local economy will be as severe as we saw in the '90s because there will be significantly fewer jobs involved."
The big cuts of the mid-1990s put the regional economy into a funk, depressing spending and driving down housing prices. They also opened the door for the rapid growth of technology as many public servants went to work in new call centres to support the industry.
The Conference Board report underlines the fact that Ottawa-Gatineau is still very much a one-industry town. A once-promising diversification into technology jobs has stalled with the collapse of Nortel Networks, the sale of locally run companies from Newbridge to Cognos, limited venture capital and the shifting of many well-paid research and development jobs to India, China and other lower-cost centres close to emerging markets.
The report notes the federal government has grown rapidly after emerging from a prolonged period of cuts in the last decade where employment reached a low of 78,000 in 1998.
"The federal government not only erased the deficit, it also started running large surpluses. In turn, the government began rebuilding the public service. "By 2009, federal government employment in Ottawa-Gatineau stood at 139,000 -- 77 per cent higher than in 1998."
Arcand said, "If anything, the capital economy today is less diversified than it was because of the rapid government growth."
The report forecasts that government jobs at all levels in the capital region will fall from a high of 157,600 in 2009 to a low of 148,000 in 2012 before starting to grow again. The numbers are based on Statistics Canada labour force survey results.
It makes no attempt to separate out federal, provincial and local government employment. But all are facing the need to pay for stimulus spending and deal with reduced tax revenue as a result of the weaker economy.
Certainly, the robust growth in government employment of 12.4 per cent in 2008 and 5.8 per cent in 2009 is likely to quickly become a memory. The strong growth sheltered the capital from the worst impact of the recession. Indeed, consumer spending rebounded quicker than in many other centres as housing sales and prices rose.
With the biggest employer now holding the budget line, the economy will still grow, but at much slower pace than in traditional recoveries. The report predicts the capital region will drop from fifth place in 2009 to seventh this year. Over the 2011-2014 period, Ottawa-Gatineau could rank 13th among 13 major cities with average annual economic growth of just 2.4 per cent.
Market Research Corp. analyst Barry Nabatian said that a reduction of about 10,000 government jobs would hurt, but spreading reductions over three years through attrition will ease the pain. "I don't think that it will be a huge thing. Some people will leave the government, but many will retire and they will continue to live and spend here."
He said other factors could create a more immediate impact on the economy, including a rising Canadian dollar hitting tourism and technology. In addition, he said provincial government efforts to cut health-care spending could drive out some doctors, nurses and other professions.
The Conference Board said the capital region sustained a 1.2-per-cent decline in economic performance last year as the recession, the Nortel collapse and the rising dollar knocked down manufacturing production by 9.6 per cent and business services by 2.9 per cent.
"Economic activity improved markedly in the second half of the year, setting the stage for much stronger growth of 2.8 per cent this year."
Overall employment will grow by about one per cent this year. The lagging sectors will be construction, where the Conference Board expects a pullback of 7.4 per cent, and public administration, expected to decline 2.9 per cent.
The report said the rising Canadian dollar, "which makes goods produced in Canada more expensive in the United States, represents a risk to the forecast.
"As well, there is still a high level of uncertainty around the local impact of Nortel's continuing efforts to dismantle itself under bankruptcy protection. Nevertheless, manufacturing output is forecast to climb by 3.5 per cent this year, while a 1.7-per-cent gain is anticipated in business services output."
The report predicted that the impact of federal spending restraints will cut across most sectors of the economy because many professional, consulting and contract operations rely on the government.
"The services-producing industries will begin to feel the pinch of slower public administration growth in 2011. ... The fiscal restraint will dampen domestic demand. Accordingly, overall services sector output growth is expected to slow to 1.9 per cent next year."
Spending restraints will take toll on region over next three years, Conference Board says
BY BERT HILL, THE OTTAWA CITIZENAPRIL 8, 2010
Hold on to your hats. The economic recovery in the capital region could be brief.
The Ottawa-Gatineau economy could lose almost 10,000 government jobs over the next three years as federal spending restraint casts a pall over the region.
In a report Wednesday, the Conference Board of Canada predicted the public service decline could be the biggest since 1991-98 when 19,000 federal government jobs were lost to layoffs, early retirement and other incentives to leave.
The report is the first to try to quantify the restraint program announced in last month's federal budget. The government ordered departments to live within current spending over the next three years and then increase spending over the following two years by just 1.5 per cent annually.
"Dark clouds loom on the horizon,'' said the report.
"A federal government departmental spending freeze will constrain growth in the area's most important sector -- public administration. Accordingly, real GDP growth is forecast to slow to 2.1 per cent in 2011," after reaching 2.8 per cent this year.
As a result, job prospects for new graduates and for new arrivals to the capital will not be bright.
The report predicts employment will grow by one per cent this year to 666,000, but just 0.5 per cent next year to 669,000. With restraint in place, it predicts overall job growth of only about 1.5-per-cent annually over the next few years.
Ottawa-Gatineau will rapidly lose its attractiveness to other Canadians and could be exporting residents to other cities and provinces in 2011 and 2012. The report predicts net migration to drop from 13,000 last year to just 5,000 this year with only the arrival of new immigrants from outside Canada holding firm.
The result is that while the local unemployment rate will likely rise from 5.7 per cent in 2009 to 5.9 per cent this year, it will retreat to 5.5 per cent during the balance of the restraint period as fewer people arrive looking for work.
"We think there will be some layoffs because Treasury Board has said that it will eliminate some programs that are of a lower priority. However, we think most of the reductions will be by attrition. As public servants retire or resign, they will be less likely to be replaced," Alan Arcand, a Conference Board economist, says.
"We don't think the results for the local economy will be as severe as we saw in the '90s because there will be significantly fewer jobs involved."
The big cuts of the mid-1990s put the regional economy into a funk, depressing spending and driving down housing prices. They also opened the door for the rapid growth of technology as many public servants went to work in new call centres to support the industry.
The Conference Board report underlines the fact that Ottawa-Gatineau is still very much a one-industry town. A once-promising diversification into technology jobs has stalled with the collapse of Nortel Networks, the sale of locally run companies from Newbridge to Cognos, limited venture capital and the shifting of many well-paid research and development jobs to India, China and other lower-cost centres close to emerging markets.
The report notes the federal government has grown rapidly after emerging from a prolonged period of cuts in the last decade where employment reached a low of 78,000 in 1998.
"The federal government not only erased the deficit, it also started running large surpluses. In turn, the government began rebuilding the public service. "By 2009, federal government employment in Ottawa-Gatineau stood at 139,000 -- 77 per cent higher than in 1998."
Arcand said, "If anything, the capital economy today is less diversified than it was because of the rapid government growth."
The report forecasts that government jobs at all levels in the capital region will fall from a high of 157,600 in 2009 to a low of 148,000 in 2012 before starting to grow again. The numbers are based on Statistics Canada labour force survey results.
It makes no attempt to separate out federal, provincial and local government employment. But all are facing the need to pay for stimulus spending and deal with reduced tax revenue as a result of the weaker economy.
Certainly, the robust growth in government employment of 12.4 per cent in 2008 and 5.8 per cent in 2009 is likely to quickly become a memory. The strong growth sheltered the capital from the worst impact of the recession. Indeed, consumer spending rebounded quicker than in many other centres as housing sales and prices rose.
With the biggest employer now holding the budget line, the economy will still grow, but at much slower pace than in traditional recoveries. The report predicts the capital region will drop from fifth place in 2009 to seventh this year. Over the 2011-2014 period, Ottawa-Gatineau could rank 13th among 13 major cities with average annual economic growth of just 2.4 per cent.
Market Research Corp. analyst Barry Nabatian said that a reduction of about 10,000 government jobs would hurt, but spreading reductions over three years through attrition will ease the pain. "I don't think that it will be a huge thing. Some people will leave the government, but many will retire and they will continue to live and spend here."
He said other factors could create a more immediate impact on the economy, including a rising Canadian dollar hitting tourism and technology. In addition, he said provincial government efforts to cut health-care spending could drive out some doctors, nurses and other professions.
The Conference Board said the capital region sustained a 1.2-per-cent decline in economic performance last year as the recession, the Nortel collapse and the rising dollar knocked down manufacturing production by 9.6 per cent and business services by 2.9 per cent.
"Economic activity improved markedly in the second half of the year, setting the stage for much stronger growth of 2.8 per cent this year."
Overall employment will grow by about one per cent this year. The lagging sectors will be construction, where the Conference Board expects a pullback of 7.4 per cent, and public administration, expected to decline 2.9 per cent.
The report said the rising Canadian dollar, "which makes goods produced in Canada more expensive in the United States, represents a risk to the forecast.
"As well, there is still a high level of uncertainty around the local impact of Nortel's continuing efforts to dismantle itself under bankruptcy protection. Nevertheless, manufacturing output is forecast to climb by 3.5 per cent this year, while a 1.7-per-cent gain is anticipated in business services output."
The report predicted that the impact of federal spending restraints will cut across most sectors of the economy because many professional, consulting and contract operations rely on the government.
"The services-producing industries will begin to feel the pinch of slower public administration growth in 2011. ... The fiscal restraint will dampen domestic demand. Accordingly, overall services sector output growth is expected to slow to 1.9 per cent next year."
