Focus

June 19, 2020 | 13:05

Digital Immunity

Economist

Director and Senior Economist
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Benjamin Reitzes

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Robert Kavcic

Director and Senior Economist
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Jennifer Lee

Director and Senior Economist
Economics

Jennifer has been with BMO Capital Markets Economics for over two decades and is perhaps best known for her high... (Read more)

Michael Gregory , CFA

Managing Director, Deputy Chief Economist and Head of U.S. Economics
Economics

Michael Gregory is Deputy Chief Economist and Head of U.S. Economics for BMO Capital Markets. He manages the tea... (Read more)

Sal Guatieri

Director and Senior Economist
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Benjamin Reitzes

Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal for over a decade. He is responsible for the Canadian macro-economic... (Read more)

Robert Kavcic

Director and Senior Economist
Economics

Robert has been with the Bank of Montreal since 2006. He plays a key role in analyzing regional economic, fiscal... (Read more)

Jennifer Lee

Director and Senior Economist
Economics

Jennifer has been with BMO Capital Markets Economics for over two decades and is perhaps best known for her high... (Read more)

Michael Gregory , CFA

Managing Director, Deputy Chief Economist and Head of U.S. Economics
Economics

Michael Gregory is Deputy Chief Economist and Head of U.S. Economics for BMO Capital Markets. He manages the tea... (Read more)

Feature

Digital Immunity

With Canada’s economy and workers crushed by COVID-19 and low energy prices, there has never been a better time for the high-tech sector to carry the torch. Though still relatively small, the sector is growing rapidly and can only benefit from an acceleration in online shopping and remote working, activities that rely on efficient, high-speed digital technology. While industries such as leisure, hospitality and travel will struggle well after the peak of the pandemic has passed, the high-tech sector appears set to thrive, partly immunizing the economy.

Few sectors have grown faster than Information and Communications Technologies (ICT). Led by a number of high-flying homegrown companies (most notably Shopify) and a rapid expansion of U.S. technology giants north of the border, it has consistently outperformed the national economy in recent years (Chart 1). From 2014 to 2019, ICT expanded 4.3% per year, more than double aggregate growth (2.0%) and almost twice as fast as all services-producing industries (2.2%). Even as the economy decelerated in 2018 and 2019, the sector strengthened to a near 5% pace. And, while real GDP contracted 8.2% annualized in the first quarter of this year, the ICT sector slipped just 0.4%.

ICT accounted for 4.8% of Canada's GDP in 2019, up from 4.2% in 2007. That’s more than twice the size of the hard-hit accommodation and food services sector. Though smaller than the energy sector (9.2%), the latter share has made no headway since 2007.

About 90% of Canadian ICT firms produce software and computer services and another 3.4% provide communications services, while wholesalers and manufacturers round out the rest. The sector is comprised of over 41,000 companies (in 2018) that employ 652,000 workers (3.5% of total) who earn an average salary 49% above the national norm [1]. With average growth of 5.8% between 2014 and 2019, computer systems design (and related services) leads the sector (Chart 2). This industry, which includes software programmers, has been one of the fastest growing in the past six years. Only a few much smaller industries, such as airlines and film, have expanded faster.

It’s not hard to understand why ICT has flourished even as the rest of the economy faded in recent years—it thrives on innovation. Digital devices are not only much sought after by nearly everyone but often trigger ideas that lead to new goods and services. Innovation also attracts investors in search of big profits. Unlike the energy sector, digital firms are less challenged to reduce an often-smaller carbon footprint. Moreover, businesses are compelled to invest in digital technologies such as AI and robotics to remain competitive.

ICT has been a stable source of jobs for Canadians. Employment in computer systems design and related services expanded 7.5% on average between 2014 and 2019 (Chart 3). The quarter million workers in this industry accounted for 1.5% of all industry jobs in 2019. While other industries shed 5.4% of their staff in March 2020, computer-systems design lost a lesser 1.9%.

Most Canadian ICT companies are small. About 85% have fewer than 10 workers (in 2018), though 102 employ over 500 people [2]. Many are subsidiaries of multinational firms based in the U.S. Foreign firms are attracted to Canada’s welcoming immigration policies, stable political system, well-educated population and relatively low industry wages. A streamlined visa system—Global Skills Strategy—has cut application times to as little as two weeks for some high-tech positions. By contrast, increased restrictions have impeded U.S. companies from filling a surplus of high-tech jobs. The average salary of a high-tech worker was US$74,000 in Toronto in 2019, compared with $133,000 in New York and $145,000 in San Francisco [3].

Many large U.S. technology firms have expanded in Canada, including Google, Microsoft, Intel, Twitter, Uber, Facebook and Amazon. The latter is building an office tower in Vancouver that will house 3,000 more workers. Toronto, Vancouver, Montreal, Ottawa and Kitchener-Waterloo have vibrant technology clusters. Toronto is ranked third in North America for high-tech talent, after San Francisco and Seattle, while Vancouver and Montreal filled the number 12 and 13 spots [4]. From 2013 to 2018, Toronto was the second fastest creator of high-tech jobs (80,100), behind only San Francisco (88,500), and it ranked first in percentage terms (+54%).

Though growing fast, Canada’s ICT sector lags behind many advanced countries. Ireland, South Korea, and Japan have ICT shares in excess of 7% of GDP (at least based on 2012 data), while the U.S. and the U.K. are above 6% [5]. This may, in part, explain the nation’s lagging productivity, as ICT tends to generate big gains in output per worker.

The Bottom Line: One of the fastest growing sectors of the Canadian economy is about to get a booster shot, as more shopping and work moves online. Though currently too small to meaningfully drive the economy, the ITC sector is a beacon of light in a very cloudy economic outlook.

Endnotes:

[1] Statistics Canada. Canadian ICT Sector Profile 2018. https://www.ic.gc.ca/eic/site/ict-tic.nsf/eng/h_it07229.html [^]

[2] Statistics Canada. Ibid. [^]

[3] Hired. “2019 State of Salaries Report” https://hired.com/page/state-of-salaries/average-tech-salary-by-city [^]

[4] CBRE Limited. “2019 Scoring Tech Talent” https://www.cbre.ca/en/about/media-center/torontos-tech-trajectory-sees-the-city-rise-to-no-3-in-cbres-north-american-talent-ranking [^]

[5] IMF. “Measuring the Digital Economy” February 28, 2018. Page 8. https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/04/03/022818-measuring-the-digital-economy [^]