A changing of the guard in Canadian growth is well under way, with British Columbia and Ontario poised to be the biggest drivers of a still-sluggish Canadian economy next year, according to a new report from CIBC Capital Markets.
The report calls for British Columbia’s economy to grow by 2.8% in 2016, the strongest of the provinces. That will be just ahead of Ontario at 2.4% real GDP growth. Previously at the top of the heap, Alberta will struggle to recover, with expected growth of only 0.7% next year, after a 2015 expected contraction of 1.2%.
“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 of CIBC Capital Markets (he co-authored the report, which is called Provincial Outlook: The Changing of the Guard, with economists Nick Exarhos and Andrew Grantham.)
“Solid growth is in store for the central Canadian and manufacturing-intensive economies of Ontario and Quebec,” says the report. “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, there was a cumulative 10% 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 will narrow further over the next two years, the report says.
Overall, the Canadian economy is forecast to rebound to 1.9% real growth in 2016 and 2.1% in 2017, from a projected 1.1% 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 Shenfeld.
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, says the report.
And, 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 adds. Plus, defense expenditures will help Nova Scotia outperform other provinces in Atlantic Canada as shipbuilding activity ramps up.
A word on currency
The now-weaker Canadian dollar should buttress manufacturing output, with Ontario and Quebec being the greatest beneficiaries, says the report.
A less discussed topic is the soft loonie’s stimulative impact on tourism, it adds. “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 Shenfeld.
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