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Whig Standard January 22 2008

Economic forecast bleak: report; Kingston's growth to drop, unemployment to rise

By Frank Armstrong

Dwindling construction and manufacturing output will ensure Kingston remains one of Canada's slower growing economies in 2008, according to a national report released yesterday.

The economic forecast from the Conference Board of Canada places Kingston 18th out of 27 census metropolitan areas when it comes to gross domestic product.

"As long as population growth is slow, GDP growth is going to be fairly slow as well," said economist Alan Arcand, the report's author.

Kingston must attract more immigrants to boost the population and increase spending, Arcand said.

He expects economic growth to drop to 2.1 per cent this year from 2.5 per cent in 2007.

The labour market is expected to follow suit with job growth expected to decelerating from 1.6 per cent in 2007 to 0.4 per cent in 2008.

As a result, the report says, the unemployment rate will rise to 6.2 per cent in 2008, up from 5.7 per cent in 2007.

While the manufacturing sector struggled last year, Kingston's public sector jobs and non-residential construction projects buoyed the local economy.

In 2007, the city reported $282 million of non-residential construction projects, making it the hottest non-residential construction year in recent history.

Despite an anticipated tapering of non-residential work in 2008, as construction at the Grand Theatre and the Kingston Regional Sports and Entertainment Centre wraps up, Arcand believes non-residential investment will remain solid this year.

Unfortunately, however, the gains in non-residential construction last year were wiped out by declining residential building, which has been falling for the last four years.

Residential housing starts fell by an estimated 17.5 per cent to 800 units in 2007, the report says. As a result, overall construction output dipped an estimated 5.7 per cent in 2007.

"Unfortunately, the same story is set to repeat itself in 2008," Arcand writes.

The construction industry could get a big lift if the $410-million Wolfe Island wind farm project goes ahead this year, but Arcand didn't know how much of that money would flow into Kingston.

The manufacturing sector has also struggled. Output is down an average of 2.7 per cent per year from 2001 to 2006, with employment sliding by an average of two per cent annually, the report says.

Manufacturing has been hit hard by the rapid rise of the loonie and intense foreign competition, which has increased the price of Canadian products imported to the U.S.

The sector has closed plants and shed jobs. At the same time, it has invested heavily in machines and equipment upgrades, allowing for increases in productivity of 0.4 per cent in 2007 that are expected to rise to 1.9 per cent in 2008.

The largest increase in jobs is expected to come from the transportation and communications sector, which Arcand forecast will experience 12.2-per-cent growth in 2008.

By contrast, growth in industrial sector employment is expected to drop by 3.9 per cent while office-related work is expected to dip by 1.6 per cent.

Arcand said Kingston is unique because its economy is stabilized by a large public-sector workforce, which doesn't tend to react as much as the private sector to market forces.

Ken Wong, a professor at the Queen's School of Business, said he wasn't surprised by the results of the forecast. Indeed, some of the same predictions were made during an economic forecast luncheon held late last year by the business school.

Thanks to the previous council, which managed to get several large construction projects started, Kingston has the potential to experience much higher growth, Wong said.

"We at least have a foundation we can build on in terms of creating some economic prosperity for the city," he said. "It's not like we don't have anything we can promote."

For example, when it opens, the west-end multiplex will bring people here for hockey games. Likewise, the Kingston Regional Sports and Entertainment Centre will bring some big acts to town. "If you get great acts, you get people. If you get people, you get prosperity," Wong said.

Jeff Garrah, CEO of the city's economic development organization KEDCO, said his agency plans to work closely with local agencies, such as the Downtown Kingston Business Improvement Area, the Greater Kingston Chamber of Commerce, and Kingston Accommodation Partners to help make Kingston an even more desirable place to live.