By Marie-Christine Bernard, Associate Director, Provincial Forecast, The Conference Board of Canada
Economic conditions remain difficult in some parts of Canada and the outlook remains clouded. The Canadian economy got off to a great start, with strong growth in January. The gains were driven by robust household spending, a surge in exports, and a double-digit increase in residential construction. Unfortunately, that momentum quickly dissipated. A number of external factors, such as the wildfires that damaged much of Fort McMurray and the surrounding areas, slowing global economic growth and the Brexit vote, have dimmed the growth outlook for Canada and will weigh on economic prospects and business sector decisions. The Canadian economy is expected to pick up some momentum in the latter part of the year — as the federal government rolls out its infrastructure spending program and tax measures aimed at helping to lift growth across Canada — start to have an impact. The slump in commodity prices is by no means over, but a recent price rally for some metals (such as nickel, zinc, and silver) will be the starting point to a gradual recovery.
Only three provinces—Quebec, Ontario, and British Columbia—are expected to see job creation this year. The other provinces are expected to shed jobs, led by large declines in oil-producing regions. Similarly, housing starts will post significant declines in most parts of Canada, with the exception of British Columbia and Ontario. Economic conditions will remain tame for most of the provinces over the rest of the year, with a more positive economic forecast for 2017. But the challenges facing the recession-hit provinces will linger for some time, as the economic recovery will still be in the early stages and demand conditions will remain under pressure.
British Columbia’s economy is booming and will significantly outpace all others this year. Real GDP growth in British Columbia will come in just shy of four percent this year, the third straight year of solid growth. The economy of Canada’s western-most province will advance at a more sustainable pace in 2017 as the housing market takes a breather; affordability will hinder growth in the sector and lower housing starts. Ontario’s economy is enjoying another strong year. However, with some planned production cuts in the auto industry, the Ontario economy will advance by a more modest, but still sound, pace in 2017. Rebuilding efforts and insurance payouts as a result of Canada’s costliest natural disaster (the Fort McMurray wildfire) will add to Alberta’s economic recovery going forward, and the large correction in the energy sector will gradually subside, helping to end the two-year recession. Quebec’s economy is in a good position. The province’s books are finally balanced and the first flight of Bombardier’s C-Series aircraft occurred recently. Challenges remain, however, as the aging of Quebec’s population weighs on the economy’s potential. Economic conditions remain difficult in a number of provinces, notably Newfoundland and Labrador, New Brunswick, and Saskatchewan. But, all three are expected to see a better performance in 2017 and we do not expect a recession in any province next year.
Stronger Economic Growth Expected in Nova Scotia
Nova Scotia is expected to perform well in 2016 and 2017. Construction in the province is benefiting from a number of major initiatives, while manufacturing is getting a boost from the national shipbuilding program under way at the Halifax Shipyard. Manufacturing of tires and seafood harvesting and processing are also contributing to the brighter outlook. The latest provincial budget was not as fiscally restrictive as those of other Atlantic provinces, with no increases in personal or business taxes. However, job creation remains the weak link, as the Atlantic provinces are suffering from the downturn in the oil patch in Alberta, which used to employ a much greater number of fly-in Atlantic Canadians.
No Economic Growth This Year for New Brunswick
Good news is hard to come by in New Brunswick, where the economy is not expected to grow this year. The province is being hurt by job losses, higher taxes, and a lack of momentum in some of the goods-producing sectors. After posting virtually no growth this year, things should start to improve next year. Construction will begin to recover as the federal stimulus plan kicks in later this year, while forestry will continue to grow strongly and manufacturing is expected to make solid gains.
Consumers Driving Growth in Ontario
Ontario’s economy is doing well. Job creation has been steady for more than a year and consumers are taking advantage of strong income gains to purchase new and existing homes, as well as goods and services. While the economy will remain on solid ground next year, we are expecting more moderate real GDP growth. Two factors are at play—a deceleration in housing demand as housing affordability slows new building activity; and a modest outlook for exports. General Motors plans to close its consolidated line in Oshawa in 2017. It is one of two assembly lines at the Oshawa site, and the closure will lower production and exports of vehicles. Thanks to a stronger economy and an ongoing fiscal place to restrain spending, the Ontario government is on its way to balancing its books by 2017-18, seven years after it laid out its fiscal plan to do so.
Resource Sector Downturn Continues in Saskatchewan
Saskatchewan’s economy is still going through turbulence. The troubles in the oil and gas sector led to a recession in 2015. While the province’s economy is more diversified than Alberta’s, it still relies heavily on the resource sector. And with depressed prices for energy as well as potash and other minerals, a quick recovery in its resource sector appears unlikely. Uranium production has been increasing in the province, but prices for the metal are at five-year lows. Saskatchewan will barely manage to avoid a recession in 2016. However, with conditions for the commodities produced in the province stabilizing or improving, the economy is expected to pick up in 2017.
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Bio: Marie-Christine Bernard is the Associate Director, Provincial Forecast at The Conference Board of Canada. Marie-Christine is presently in charge of the medium and long-term provincial forecast and publication. She also works on financed research projects and prepares alternative scenarios to the provincial forecast.