Changing of the provincial guard in Canadian growth is well underway
TORONTO, Nov. 23, 2015 /CNW/ – A changing of the guard in Canadian growth is well underway, with British Columbia and Ontario poised to be the biggest drivers in a still-sluggish Canadian economy next year, finds a new report from CIBC Capital Markets.
The report calls for British Columbia’s economy to grow by 2.8 per cent in 2016, the strongest of the provinces and just ahead of Ontario at 2.4 per cent real GDP growth. Previously at the top of the heap, Alberta will struggle to recover, with expected growth of only 0.7 per cent next year after a 2015 expected contraction of 1.2 per cent.
“Canada’s economic path has been sent off course by weakness in global growth, but to an even greater extent than in the national outlook, provincial fortunes have been turned on their head,” says Avery Shenfeld, Chief Economist, CIBC Capital Markets, who co-authored the report, Provincial Outlook: The Changing of the Guard, with economists Nick Exarhos and Andrew Grantham. “Solid growth is in store for the central Canadian and more manufacturing intensive economies of Ontario and Quebec. But, the top spot is reserved for B.C., which has been benefiting the most from overseas investment and from bordering some of the fastest growing areas of the U.S. economy at present.”
Before oil prices collapsed, from 2006 to 2014, there was a cumulative 10 per cent gap in real GDP between the three energy provinces — Alberta, Saskatchewan, and Newfoundland & Labrador — and the rest of Canada. That gap has been diminishing, and over the next two years, it will narrow further, the report says.
“The changing of the guard in Canadian growth is well underway,” says Mr. Shenfeld.
Overall, the Canadian economy is forecast to rebound to 1.9 per cent real growth in 2016 and 2.1 per cent in 2017 from a projected 1.1 per cent this year.
“Much of the downshift in national GDP has captured the steep retreat in capital spending in mining, oil and gas over the past year, and 2016 could see a less-dramatic but still negative trend in that sector,” says Mr. Shenfeld.
Negative multiplier effects from energy-centered layoffs will persist into 2016 in such areas as retailing and commercial real estate development, but with energy activity starting from a lower level already, while it will still weigh on Alberta, Saskatchewan, and Newfoundland & Labrador, it will do less damage to the national GDP growth rate, the report says.
Offsetting some of the weakness in the oil patch will be the economic lift from a weaker Canadian dollar and the first leg of increased federal infrastructure spending.
While federal infrastructure dollars have yet to be allocated, Ontario, B.C. and Nova Scotia can all make a case that they have the most ground to make up in infrastructure spending, the report says. Defense expenditures will also help Nova Scotia outperform other provinces in Atlantic Canada as shipbuilding activity ramps up.
Provincial infrastructure spending in Alberta should help tip its economy into positive territory next year. “But down the road, the province hopes that a return to energy sector activity arrives in time to counter future fiscal restraint,” Mr. Shenfeld says.
The now-weaker Canadian dollar should buttress manufacturing output, with Ontario and Quebec being the greatest beneficiaries, not only in export volumes today but over time, with new or expanded plants.
Less discussed is the soft loonie’s stimulative impact on tourism, the report says. “There, B.C. and P.E.I. stand as the provinces with largest share of GDP in that potentially winning sector and other provinces could benefit to a lesser extent from decreased cross-border shopping,” says Mr. Shenfeld.
The changing of the provincial guard in growth leadership will still leave one key trend in place, however.
The less-energy-centered provinces in Atlantic Canada aren’t going to completely shed their status as slower trending regions, the report says.
“Demographics are destiny over the medium term, and declining working-age populations in Atlantic Canada underlie their soft potential and actual growth rates since 2006,” says Mr. Shenfeld. “In that region, as little as 1 per cent GDP growth can represent a good year in terms of its impact on the unemployment rate.”
The complete CIBC Capital Markets report is available at: http://research.cibcwm.com/economic_public/download/einov15.pdf
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