Economic Conditions Shaping Canada in 2022
Ongoing health restrictions and rising vaccination rates along with supportive fiscal and monetary policies are contributing to Canada’s economic recovery and are having a positive derivative effect on the information and communications technology sector. Overall, in 2022 we expect to see strong economic growth with real GDP rate at 4.1 percent, and 3-4 percent in 2023, compared to 5 percent in 2021. In a positive move, the Bank of Canada tapered and ended its quantitative easing program, a clear sign that Canada’s economy is well on its path to recovery. On the exports front, we’ve seen a rebound as the United States shows signs of a more revived economy, which is all good news for Canada with the United States constituting nearly 74 percent of Canada’s total export. And while all of this is positive, markets are still concerned with some of the major challenges of 2022, supply chain disruptions, energy constraints, and new COVID-19 variants.
According to Tiff Macklem, the Governor of the Bank of Canada, the inflation rate is transitory, but will not be short-lived. And the latest data shows the current inflation rate in Canada at 4.7 percent, but it will most likely increase to 5 percent by early 2022, and then ease back to 2-3 percent by late 2022. Key factors driving inflation are supply chain-related bottlenecks and higher energy prices. The central Bank generally increases the interest rates to lower down inflation. However, to support the economic revival, the interest rate is predicted to remain low until a 2 percent inflation rate is achieved. For the labor sector, around 154,000 jobs were added in November, and the unemployment rate declined to 6 percent which is nearly equal to the 2019 rate of 5.5 percent. This is a positive indication of economic recovery from the recession.
Supply Chain and Energy Prices Remain a Challenge in 2022
One of the major challenges that will hinder economic growth in Canada is global supply chain disruptions in 2022. Consumers are spending more on goods as compared to the pre-pandemic period and the supply is unable to keep up with the excess demand. Factory closures, labour shortages in transportation nodes, and increases in shipping costs are disrupting the entire supply chain. The shipping costs per container from overseas to Canada have increased, and in some cases by more than 50 percent which is leading to price volatility and inflation. The supply chain disruptions were accentuated due to extreme flooding in British Columbia in November, and Port of Vancouver was cut-off from the rest of the country as railways and highways were either damaged or washed out.
The key industry affected by the supply chain disruptions is manufacturing. For example, the shortage of semiconductor chips is leading to production delays for electronics appliances and automobiles parts. And due to the closure of overseas textile factories manufacturing upholstery and shipping issues, the furniture supply is also affected in Canada.
Another driver for inflation is an increase in gasoline and natural gas prices which is leading to an overall increase in energy prices by more than 25% in October 2021 as compared to October 2020.
Canadian ICT Sector Outlook for 2022
The pandemic has accelerated long-term digital transformation initiatives to be completed in months, rather than years. We now see businesses rapidly adopting digital channels for customer interactions and embracing the use of advanced technologies in business decision-making. In 2022, IDC expects the Canadian Information and Communications Technology sector to grow at a 4 percent rate (similar to the estimated overall Real GDP growth rate of 4.1 percent). Technology segments such as cloud services, next-generation security, AI, Robotics, and AR/VR will be the major drivers for the overall ICT growth in the next one to two years.
Here’s a brief look at some of the technology and data trends we expect for 2022:
- Personal Computing Devices: The pandemic has forced the knowledge-based industries to restructure how they work, driving up the sales of personal computing devices such as laptops and tablets as everything-from-home (everything includes work, schooling, shopping, etc) has become the norm. However, supply chain disruptions will hamper the sales of personal computing devices in 2022.
- Infrastructure as a Service (IaaS): The IaaS will grow above 10% driven by increased demand for compute and storage requirements.
- Communications Market: The 5G network deployment across Canada will continue and mobile data will remain the major segment of revenue for Canadian telecom operators in 2022.
- Drone Sector: Drone use cases in Canada witnessed one of the fastest growth rates in 2021. The drone technology in Canada has already taken off and regulations are moving forward swiftly. It is worth 350 million dollars and Enterprise drone spend will surpass the Consumer drone spend in 2022, according to IDC’s Worldwide Digital Transformation Spending Guide 2021.
- Innovation Wave: If we take a cue from history, we can infer that crisis usually brings along a wave of innovation. For example, the printing press invention was the result of a shortage of workers after the bubonic plague in Europe in the fourteenth century. Similarly, today Canadian organizations are adopting automation to keep infection rates and operational costs low. A good example is Dark Horse Espresso’s automated espresso bar, offering Canada’s first robotic cafe, and contactless experience.
- Cyber Security will remain an imperative area of investment for both government and businesses across Canada. The ransomware attack on Newfoundland and Labrador healthcare system and the data breach at Ottawa’s French-language public school board showed how cyber-attacks can have a real impact on the lives and safety of people.
- Artificial Intelligence will remain an important technology investment area in 2022. As organizations move from products to platform-based business models, it requires redesigning and developing new use cases, and AI will be an integral part of this transformation. Few of the prominent AI-embedded use cases which saw a surge in investments are automated customer service agents, digital assistants, fraud analysis, and investigation. According to IDC’s Worldwide AI Spending guide 2021, the cumulative spend on AI use cases in Canada will be over 11 billion dollars from 2022 to 2025.
Advice to Canadian Technology Leaders in 2022
The reopening of the economy in 2022 will be choppy and bumpy. There is a fear by the monetary policymakers in Canada that increasing interest rates might spiral the economy back to recession. Taking a cue from past trends from 2008-2011, when European Central Bank increased the interest rate, economic growth stalled and worsened the debt crisis. Whereas the Bank of England and Federal Reserve kept the interest rate unchanged and were able to better weather the storm. Therefore, keeping the interest low in this crisis seems a reasonable approach.
The global economy is recovering, but manufacturing shortages, shipping, and ports logistics bottlenecks, and labor shortages in certain parts of the world are disrupting the supply of goods, and supply is unavailable to keep up with the demand. For the economy to return to normal, consumers need to spend more on services. And if the newer variants evade the vaccines, then our economy will face further headwinds.
Here are my top recommendations for Canadian technology leaders:
- Proactively foresee risks that can disrupt value chains and develop mitigation plans.
- Constantly scan for inorganic growth opportunities through mergers and acquisitions to augment and grow technology capabilities.
- Start by looking at best-of-breed competitors, which technologies they are deploying, and what skill sets are needed to deploy these solutions.
- Look at ancillary industries to see how they are using new technologies, how they can leverage those technologies in their industry, and take a leadership position.
- Vendors or sellers of technology should examine use cases within their target industries, work with other ecosystem players to develop solutions, and establish new partnerships to synergize capabilities.
Do you need help pinpointing opportunities or evaluating the competitive landscape? If you want to learn more about the Canadian tech landscape and how to map a detailed TAM, please review IDC’s Data & Analytics solutions or contact me at firstname.lastname@example.org.
Stay up to date with the latest advances in Canadian tech research and upcoming IDC events. Subscribe to Analyze This: IDC Quarterly Tech Brief and receive a quarterly digest with the latest trends and advice from IDC’s industry-leading analysts.
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. To learn more about IDC Canada, please visit www.idc.com/ca or follow on Twitter at @idccanada and LinkedIn.
About the Author
Amit Sharma, Research Manager, Data & Analytics
Associated IDC Services: IDC Spending Guides & Trackers - Canada Region, and IDC Canada IT & Telecom Market Models
Amit Sharma leads the Data & Analytics team at IDC Canada. His team is involved in building custom forecasts, automating client deliverables, conducting economic analysis, contributing to IDC spending guides, and other IDC worldwide data products.
Amit covers several markets including telecommunications, IT services, and network equipment among others. He specializes in data analysis, forecasting, data visualization, and project management. If you want to connect with Amit, feel free to reach out to email@example.com