QUEBEC IS ADJUSTING TO ECONOMIC GLOBALIZATION

1. QUEBEC IS ADJUSTING TO ECONOMIC GLOBALIZATION ROMANIA, SEPTEMBER2008 http://www.finances.gouv.qc.ca

2. PLAN OF THE PRESENTATION 1Quebec’s Economy 2 International Situation 3Adjustment in Quebec 4Economic Forecast 5Conclusion

3. Quebec at a Glance QUEBEC’S ECONOMY • The largest province in Canada • Population of 7.7 million • GDP of US$245 billion (PPP) • Per capita GDP of US$31 845 (PPP) • International exports: 36.3% of GDP • Free trade between Canada, the United States and Mexico

4. A Modern and Diversified Economy QUEBEC’S ECONOMY Distribution of Real GDP by Major Sector in 2007 Natural resources : 2.2% Construction : 5.8% Manufacturing : 18.9% Services : 73.1%

5. Greater Economic Integration INTERNATIONALSITUATION Freer trade Fragmentation of the production process Specialization in production Offshoring of part of production • Advances in technology • Improvements in transportation • Many agreements and international policies

6. Offshoring of Production INTERNATIONALSITUATION Hourly Pay of Manufacturing Workers (American dollars, 2006) Offshoring of part of global production to emerging economies Hourly pay of workers is lower than in advanced countries In particular, China has gained substantial market shares throughout the world

7. Substantial Growth in World Trade INTERNATIONALSITUATION Global Exports of Goods and Services (Billions of American dollars) The internationalization of production has resulted in substantial growth in international trade The advanced economies have benefited from cheap goods and services and have become more specialized in high technology goods: • Germany and the United States are the world’s largest exporters

8. Employment in the Manufacturing Sector in Decline Compared to Services INTERNATIONALSITUATION Share of Employment by Sector in the Global Economy (Percentage of total employment) Greater demand for services The total number of manufacturing jobs in the world is up because of job creation in certain emerging countries Thanks to productivity gains, global manufacturing production continues to rise

9. Quebec Is Under Pressure on a Number of Fronts ADJUSTMENT IN QUEBEC Significant appreciation of the Canadian dollar versus the American dollar High energy costs Economic difficulties in the United States Transformation of global trade Other challenges facing Quebec: • Productivity • Demographic changes

10. A Difficult International Situation: Oil Price and a Dollar That Are High and Volatile ADJUSTMENT IN QUEBEC Canadian Dollar(American dollars) Oil Price (West Texas Intermediate, American dollars )

11. Changes in International Trade Are Having a Major Impact on Quebec ADJUSTMENT IN QUEBEC Chinese Market Shares in the United States (Percent) Share of the American Market (Percent)

12. Quebec Is Adjusting to Economic Globalization ADJUSTMENT IN QUEBEC Manufacturing Job Losses Between 2002 and 2007 (Thousands) • Manufacturing job losses in North America: • In Quebec, one out of every five jobs • In Canada, one out of every eight jobs • In the United States, one out of every eight jobs

13. Job creation Weekly pay (Units) (Dollars) 2002 - 2007 2007 Manufacturing sector1 Clothing - 21 500 578 Textile plants and textile products - 10 500 690 - 39 400 Furniture and related products - 4 300 750 Wood products - 3 100 741 Electrical equipment, appliances 500 997 and components Non-metallic products 1 000 778 Metal products 2 300 794 Services2 Warehousing and transportation1 21 200 758 Finance, insurance, real estate 777 +108 900 39 200 and leasing1 Professional, scientific and technical 48 500 885 services1 Job Losses Concentrated in Low Value-Added Sectors ADJUSTMENT IN QUEBEC Employment, Wages and Salaries in Quebec 1: According to Statistics Canada’s Labour Force Survey. 2 : According to Statistics Canada’s Survey of Employment, Payrolls and Hours.

14. Exports Have Peaked ADJUSTMENT IN QUEBEC Quebec’s Exports of Goods and Services (In millions of chained 2002 dollars)

15. Quebec Continues to Increase Exports in High Value-Added Sectors ADJUSTMENT IN QUEBEC Cumulative Growth in Merchandise Exports from 2002 to 2007 in Quebec (Percent)

16. Quebec Must Meet the Productivity Challenge ADJUSTMENT IN QUEBEC Productivity In 2006 (Real GDP per hour worked, dollars) Quebec’s productivity lags significantly behind that of its trading partners For Quebec to equal Canada’s real GDP per hour, it would have to double its growth in hourly production each year for 15 years

17. Demographic Changes Will Have an Impact on the Economy ADJUSTMENT IN QUEBEC Number of people of working age (age 15 to 64) as a proportion of the number of people age 65 or over (Percent) Projection of the population age 15 to 64 in Quebec P P: Statistics Canada

18. No Recession Expected Despite a Slowdown in 2008 and 2009 FORECAST ASSUMPTIONS Real Gross Domestic Product (Percentage change) 2.4 2.0 2.0 1.5 P P P: 2008-2009 Budget projection

19. Contribution of the External Sector FORECAST ASSUMPTIONS Contribution of the External Sector (As a percentage of real GDP) P P: 2008-2009 Budget projection

20. Domestic Demand Remains Vigorous FORECAST ASSUMPTIONS Contribution of Domestic Demand(As a percentage of real GDP) P P: 2008-2009 Budget projection

21. The Quebec Government Is Taking Action CONCLUSION Balance the budget Reduce personal and corporate taxes Encourage investment Implement an infrastructure plan ($30 billion over 5 years) Tackle the public debt and control spending Support the transformation of the economy

22. Quebec Continues to Adapt to the International Situation CONCLUSION Jobs have moved from manufacturing to the service sector Manufacturing output is shifting to high value-added sectors requiring skilled workers Companies are investing to boost productivity The external sector remains under pressure