ECONOMIC STUDIES | NOVEMBER 4, 2020

ECONOMIC VIEWPOINT Overview of ’s Capital Regions for 2020–2021

In the capital regions, economic growth will undergo a downturn GRAPH 1 in 2020 due to the current pandemic, as it will for Quebec as a The capital regions will see slightly faster growth in 2021 than whole. As shown in graph 1, the two regions will contract slightly Quebec as a whole 2020f 2021f less than the province as a whole in 2020; the rebound anticipated in 2021 should be slightly stronger. The somewhat better outlooks Quebec as a whole -4.8 6.3 stem from their industrial structure: the weight of the public service gave their economies good stability. Both regions feature large Outaouais -4.7 6.4 service sectors, which allowed more businesses to work remotely.

However, the economic rebound expected for 2021 could be Capitale-Nationale -4.4 7.0 downgraded if the pandemic’s second wave leads to tougher -6 -5 -4 -3 -2 5 6 7 8 restrictions. This is currently the greatest risk to the forecast scenario. Ann. var. in % Ann. var. in % The COVID‑19 crisis is still affecting many countries and uncertainty f: Desjardins forecasts Source: Desjardins, Economic Studies remains elevated.

MAP 1 Quebec’s regions

Nord-du-Québec Côte-Nord

Saguenay– Lac-Saint-Jean Gaspésie– Îles-de-la-Madeleine Abitibi- Bas- Témiscamingue 1 – Resource regions Saint-Laurent Lanaudière Capitale- 2 – Manufacturing regions Nationale 3 – Urban regions Outaouais Chaudière- 4 – Capital regions A - Laval Appalaches D B - Montréal C - Montérégie C A D - Centre-du-Québec B

Source: Desjardins, Economic Studies

François Dupuis, Vice-President and Chief Economist • Mathieu D’Anjou, Deputy Chief Economist • Chantal Routhier, Senior Economist Desjardins, Economic Studies: 418‑835‑2450 or 1 866‑835‑8444, ext. 5562450 • [email protected] • desjardins.com/economics

NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2020, Desjardins Group. All rights reserved. ECONOMIC STUDIES

Population Growth Will Remain Fairly Sustained Based on the projections of the Institut de la statistique du Québec (ISQ), population growth will be slightly weaker in the Capitale-Nationale in 2020 and 2021 than in the previous two Replacement index In % years, and will be about the same in Outaouais (graph 2). The 115 110 Labour replacement 109 107 Outaouais will remain ahead of the provincial average. It will even index: 105 20-29 years x 100 have one of the strongest paces of Quebec’s regions. 55-64 years 95 88 86 84 84 85 83 77 GRAPH 2 75 Population growth will remain relatively sustained 2006 2016 2021f

Average 2018-2019 Average 2020f-2021f Quebec as a whole Capitale-Nationale Outaouais

Quebec as a whole 0.94 0.67 f: Institut de la statistique du Québec projections, based on the baseline scenario for 2019 Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

Capitale-Nationale 0.75 0.64 pressure on the labour market by narrowing the gap between labour supply and demand.

Outaouais 0.85 0.80 For example, the Outaouais index will be at 77% in 2021. In other words, for each group of 100 people who leave the labour 0.0 0.5 1.0 1.5 0.0 0.5 1.0 1.5 Ann. var. in % Ann. var. in % market, there will be 77 people who are of age to replace them. f: Institut de la statistique du Québec projections, based on the baseline scenario for 2019 The index has declined 33 points since 2006. Sources: Institut de la statistique du Québec and Desjardins, Economic Studies Employment Markets Strengthen For both regions, migration (arrivals minus departures) will be The Capitale-Nationale and Outaouais regions benefited from primarily responsible for population growth from now until 2021, the heavy presence of the public sector to lessen the pandemic as the contribution from natural growth (births minus deaths) shock to their respective economic activities. Employment will shrink. In addition, a brief look at interregional migration nonetheless dropped and unemployment rates soared to historic shows that the capital regions remain attractive, particularly for highs in the spring after having trended down (graphs 5 and 6 Montréal and Montérégie residents (graph 3). on page 3).

At the same time, like elsewhere in Quebec, these regions must In the Outaouais, the employment market is gradually deal with the challenge of replacing workers (graph 4). Their recouping the lost ground, but it will take some time‑perhaps labour replacement indexes have been declining for several years several quarters‑to return to pre‑crisis levels. For its part, the now, which means there aren’t enough people to fill all the Capitale‑Nationale has already recovered, and has even exceeded positions left vacant by retirements. In fact, for every 100 people the level of employment that prevailed prior to the public health who retire (aged 55 to 64), there are fewer than 100 people old and economic crisis. enough to enter of labour market (aged 20 to 29). This is putting Among the key economic drivers for the capital regions are education, health care and social services, the finance and GRAPH 3 insurance industry, real estate and leasing services, lumber and Interregional migration of resource regions in 2018–2019 paper manufacturing, and the retail trade industry. For many municipalities around the major and centres, agriculture and forestry are important economic Breakdown of in- Breakdown of out- activities. The speed of the recovery will vary by sector (graph 7). migrants based on the migrants based on the REGIONS three main regions of three main destination origin regions Tourism is an economic pillar in both regions; the pandemic has

1) Chaudière-Appalaches 1 ) Chaudière-Appalaches slowed activities and it will take some time for the industry to Capitale- 2) Montréal 2) Montréal Nationale turn around. This could hurt many businesses which will struggle 3) Montérégie 3) Montérégie to recover. However, Quebecers have been more drawn to 1) Montréal 1 ) Montréal Outaouais 2) Montérégie 2) Laurentides resorts and vacations in nature. A number of municipalities have 3) Laurentides 3) Montérégie therefore fared well despite the current situation.

Sources: Institut de la statistique du Québec and Desjardins, Economic Studies

NOVEMBER 4, 2020 | ECONOMIC VIEWPOINT 2 ECONOMIC STUDIES

nemployment rate In – griculture, fishing and auaculture table table orestry, lumber, paper and furniture nfavourable nfavourable onstruction table table ood and beverages table table Retailing nfavourable table rofessional, scientific and technical services table ood inance and insurance table table f Educational services ood ood ealthcare and social assistance table ood uebec as a whole apitaleationale Outaouais rts, entertainment and recreation ifficult nfavourable ccommodation and food services ifficult nfavourable f esardins forecasts ublic administration ood table ources Institut de la statistiue du ubec and esardins, Economic tudies

In the “Economic Recovery” section, the estimate of employment recovery is established according to the following considerations he employment recovery will be strong he employment recovery will be ood nfavourable and rapid more difficult he employment recovery will be fairly he employment recovery will be table ifficult rapid very difficult In the “Mediumterm Outlooks” section, the assessment of the employment outlook is based on the following definitions ood Employment will be above preOI levels at the end of the period table Employment will be similar to preOI levels at the end of the period evel number Employment will be below preOI levels or some additional layoffs could occur before the apitale nfavourable end of the period ationale ariation in Employment will be below preOI levels or additional layoffs could occur before the end of ifficult evel number the period Outaouais evel number ariation in ources ervice anada and esardins, Economic tudies

month moving average tart of lockdown, ockdown tart of reopening ources Institut de la statistiue du ubec and esardins, Economic tudies

ransactions verage sales price The Residential Market Holds Up New construction jumped in the Capitale-Nationale, but fell in uebec as a whole the Outaouais in the first half of 2020. This year’s performance will therefore be positive in the former and negative in the latter. apitaleationale Both regions will see housing starts contract in 2021, as will the province as a whole. Outaouais

In terms of sales of existing properties, an increase is anticipated in the Capitale‑Nationale, while the Outaouais should slow f f f f in 2020. Both regions will post positive growth in 2021. The nn var in nn var in f esardins forecasts average sale price will rise slowly in the Capitale-Nationale ource esardins, Economic tudies into 2021. In the Outaouais, the rise will be much sharper (graph 8) due to the area’s tighter market: it is grappling with a Investments Should Hold Up shortage. It is difficult to predict which way investment will go due to the uncertainty we are currently experiencing. While public In addition, more stringent rules for new mortgage loan investments should increase given the Quebec government’s insurance applications with the Mortgage and Housing plan to ramp up major infrastructure work, nothing could be less Corporation (CMHC) came into effect on July 1. For example, the certain for the private sector. Business confidence remains low maximum debt ratio permitted is lower, the mandatory minimum and many are having their profitability severely challenged by the credit score was raised from 600 to 680, and down payments pandemic. Some will recover more quickly, while for others the from non‑traditional sources are no longer accepted. journey will be long and slow.

NOVEMBER 4, 2020 | ECONOMIC VIEWPOINT 3 ECONOMIC STUDIES

Ongoing infrastructure work in the capital regions should The challenges involved in attracting and retaining labour and maintain a certain pace for investment. In the Capitale-Nationale, in the flow of people and merchandise will slowly return to projects include construction of the new hospital complex (NCH) centre stage. Although the unemployment rate should remain between 2017 and 2025, for $2.0B; the NCH will offer the clinical above pre‑crisis levels for some time, there are still sectors and services provided by Hôtel-Dieu de Québec and Hôpital de businesses that are actively seeking labour, including health and l’Enfant-Jésus. There is also the “Faubourg du Moulin” housing social services, education, and high technology. and commercial development ($400M) and the expansion of Autoroute Henri IV (phase II) ($291M). Conclusion In the capital regions, the economy will generally recover a little Outaouais projects include the Domaine du Vieux Port more quickly than in Quebec as a whole over the months to development (phases II and III) ($700M) and the “AGORA” come. They should return to pre‑pandemic levels by the end mixed neighbourhood ($250M), as well as construction of a new of 2021. If the pandemic’s second weak leads to more restrictive archive preservation centre ($330M). public health measures, the rebound expected in 2021 could be downgraded. This is currently the most significant risk to Moreover, the G15+ Capitale-Nationale region was created the forecast scenario. Population growth will remain sustained in July 2020. It is an association of several partners and socio in both regions and the employment market will continue to economic organizations that is working to kick start the region’s recover. Investment should remain relatively high. Lastly, the economy. The priorities selected include support for buying local ability of businesses to adapt to the new reality and make the and a more sustainable economy, renovating road infrastructures, shift to Industry 4.0 will be determining factors in the economic accelerating structuring public transit projects, and support for recovery. the electrification of transportation for people and merchandise.

Issues and Challenges Chantal Routhier, Senior Economist The speed at which the two regions’ economic activities recover will depend on numerous factors, including the recovery of drivers that are specific to each of the capital regions, the performance of supply chains in all businesses, and the integration of digital technology. Businesses’ ability to reconcile profitability with the challenge of respecting public health instructions, including social distancing, will also be key to the recovery.

NOVEMBER 4, 2020 | ECONOMIC VIEWPOINT 4