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Study: Terms of trade in Central Canada
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Between 2002 and 2007, Quebec and Ontario began adjusting to the emergence of China as an economic powerhouse, a rising Canadian dollar and higher commodity prices. Their manufacturing sectors shed jobs, while shifting towards more durable goods production in Quebec and retrenching in Ontario.
Despite the loss of factory jobs, construction and service sector employment more than made up the difference, leading to overall job growth and falling unemployment rates. Mining industries in both provinces benefited from rising prices, leading to higher employment and wages.
Despite the increase in energy prices, the terms of trade improved in both Quebec and Ontario between 2002 and 2007. The terms of trade is the ratio of export prices to import prices, and represents the rate at which exports are traded for imports.
Although the terms of trade increased after 2002 in both Quebec and Ontario, the sources of the improvements were noticeably different.
For Quebec, the effect of Asia integrating into world markets contributed to higher export prices, notably metals, and lower import prices, despite the rise in energy prices. The combination of lower manufactured prices and the appreciation of the Canadian dollar translated into a sufficiently large drop in non-energy import prices to overcome the rising price of energy imports.
Ontario's terms of trade also improved, but the gain came from import prices declining faster than the drop in export prices. Downward pressure on the global price of manufactured goods led manufacturers in Ontario to lower their prices. Still, overall export prices did not decline as quickly as import prices, and the terms of trade rose. The increase in Ontario's terms of trade was only half that of Quebec, and markedly less than for all of Canada.
The effect of terms-of-trade changes on real income can be measured using real gross domestic income (GDI). Real GDI is gross domestic product (GDP) deflated by the price of domestic spending. Rather than focusing only on production, it accounts for changes in purchasing power. It is therefore an income concept that reflects the goods and services an economy can use for consumption and investment instead of the goods and services an economy produces.
In Ontario, consumption rose an average of 3.4% from 2002 to 2007 as real GDI (+2.4%) growth outpaced real GDP (+2.2%). In Quebec, consumption growth averaged 3.3% as real GDI (+2.6%) rose faster than real GDP (+2.0%).
Definitions, data sources and methods: survey numbers, including related surveys, 1302, 1303, 2202 and 2203.
The study, "Terms of trade in Central Canada," is now available as part of the series Insights on the Canadian Economy (11-624-MIE2008022, free), from the Publications module of our website.
The study, "Terms of trade in Central Canada," is also included in the December 2008 Internet edition of the Canadian Economic Observer, Vol. 21, no. 12 (11-010-XWB, free), now available from the Publications module of our website. The monthly paper version of the Canadian Economic Observer, Vol. 21, no. 12 (11-010-XPB, $25/$243), will be available on December 18.
For more information about the Canadian Economic Observer, click on our banner ad from the Publications module of our website.
For more information, or to enquire about the concepts, methods or data quality of this release, contact Ryan Macdonald (613-951-5687; ryan.macdonald@statcan.gc.ca), Micro-economic Analysis Division.
