TORONTO STAR ARTICLE

Apr.14, 2005. 07:18AM

Oshawa Canada's next boom town
City to grow average 3.8% from 2006 to 2009, study says
Toronto not far behind with 3.6% expansion predicted

DAVID BRUSER AND STEVEN THEOBALD
BUSINESS REPORTERS

Oshawa will lead Canada in economic growth next year through to 2009, fuelled by increased investment and vehicle production at General Motors of Canada Ltd., followed closely by Toronto in the Number 2 spot, the Conference Board of Canada predicts.

Oshawa's economy stagnated in 2004 — the rising dollar is partly blamed for a 2.7 per cent drop in manufacturing employment — but the rebound is already underway.

The city's real gross domestic product, the total value of goods and services produced, is forecast to grow by 3.3 per cent in 2005 and by an average of 3.8 per cent a year from 2006 to 2009, topping the Conference Board's city forecasts.

Toronto holds the Number 2 spot for the medium-term forecast of cities, just ahead of Calgary and Vancouver.

In addition to increased investment by GM, Oshawa will benefit significantly from large population inflows, said Mario Lefebvre, the Conference Board's director of metropolitan forecasting.

"Oshawa has been blessed, and I'm sure its proximity to Toronto has a lot to do with that, with very strong population growth year in and year out for the past five or six years."

GM, the largest employer in Oshawa, announced last month it will pump $2.5 billion into its Canadian operations, a move the firm calls the biggest auto investment in Canadian history.

It's going to take more than GM to ensure Oshawa's prosperity, countered Gord Sirrs, chair of the Durham Region Manufacturers Association.

He fears the city's reliance on manufacturing could make Oshawa vulnerable if the Canadian dollar and crude-oil prices remain strong.

"Let's face it, this is an automotive town," Sirrs said. "The only thing I really get concerned about is prices of oil and how that affects us in a way that we can't measure right now."

Actually, the Conference Board is predicting that by next year the Canadian dollar will start falling back down to the 76 cents (U.S.) level, taking the pressure off exporters.

Even Toronto's factory sector is expected to post robust 4.9 per cent annual growth from 2006 to 2009, boosted by a weaker loonie, according to Conference Board forecasters.

This year, Toronto manufacturers are expected to hit a soft patch in the second and third quarters, pulling output down to 2.9 per cent for the year and well off the 7.8 per cent surge that occurred in 2004 despite the strong Canadian currency.

Overall, Toronto's economy is expected to grow by 2.7 per cent this year, putting it in the Number 10 spot for 2005 and just ahead of the 2.5 per cent pace for Canada as a whole.

Toronto's expected performance for 2005 is a far cry from last year's 4.6 per cent expansion, but not bad considering that roughly 20 per cent of the city's output is exported to the United States. "We have to remember we've had a strong Canadian dollar for a while but things have been going incredibly well," said Lefebvre.

The domestic side of Toronto's economy, backstopped by 1.6 per cent employment growth, is expected to do well again this year, including a 4.3 per cent rise in retail spending.

"As long as you keep consumers in the stores, you are doing pretty decently," Lefebvre said.

Toronto sits firmly in second place, behind Oshawa, for 2006 to 2009, with growth expected to average 3.6 per cent.

For 2005, Calgary's economy is forecast to post the largest gain, at 4.6 per cent, then settle to an average of 3.4 per cent over the following four years.

The Conference Board also likes Kitchener's prospects. Though the city's economy shrank by 0.3 per cent last year, it is expected to rebound sharply. The forecast calls for 3.4 per cent expansion this year — strong enough for the Number 2 spot — moderating to 3 per cent from 2006 to 2009.

For Jason Mercer, Canada Mortgage and Housing Corp.'s Kitchener analyst, the proof is in the demand for housing.

"It's been one of the hotter markets in southern Ontario. We had record sales of homes in the resale market last year."

Among those job creators in the Kitchener area, the Conference Board cited three call centres that added 1,000 jobs last year, the new Spheral Solar Power's $100 million solar-cell plant in Cambridge, Toyota's Cambridge plant and BlackBerry-maker Research in Motion Inc.