The outlook for Canada’s provinces and beyond

By Kate McCaffery | March 22, 2005 | Last updated on March 22, 2005
4 min read

(March 22, 2005) In the next couple of years, economic growth in many countries will be dependent on domestic demand while the U.S. dollar stabilizes. Business and consumer spending are going to buoy the Canadian economy in 2005, the dollar will likely finish the year around 80 cents US and the Bank of Canada will boost interest rates to 3% in the last quarter of 2005, predict economists from RBC Financial Group.

According the quarterly economic forecast released today by RBC, the dominant theme for economies around the world in 2005 will be the management of domestic demand as the United States savings gap drives currency prices higher against the U.S. dollar. In Canada, provincial economies across the country appear poised and ready for the challenge, despite the dollar’s effects on manufacturing and weaker housing starts.

Among the provinces, British Columbia and Newfoundland have the most interesting stories to tell and Alberta continues to lead the country in economic growth this year. Surprisingly though, the oil rich province may need to yield the growth leader title to Newfoundland Labrador next year.

In Canada, housing is expected to decline across the country in all provinces except British Columbia. The west coast province is expected to buck the trend because of several positive factors. As the country’s “Asian gateway,” the province stands to benefit from continued strong trade with China. As well, the provincial government reversed its deficit in 2004, providing new opportunities for finance stimulative projects and finance future demands like the 2010 Olympic games.

British Columbia is also helped by its high-tech sector, increased gas production in the north, and rapid accumulation of softwood lumber inventories that resulted from efforts to thwart the impact of pine beetles.

According to RBC’s report, people are also migrating to B.C. at Alberta’s expense, thus fueling growth in housing starts.

“This could well prove to be a glorious decade for B.C.” says Craig Wright, vice-president and chief economist at RBC. “Every one of the factors that had previously hurt the province’s economy is turning around.”

At the other end of the country, Newfoundland and Labrador has the lowest growth rate. RBC expects GDP growth to slow to 1.6% in 2005. Next year, on the other hand, is another story entirely. The province is expected to be the country’s GDP leader in 2006 when Voisey’s Bay Nickel Company and the White Rose offshore oil project start production. Both projects are expected to benefit hugely from high nickel and energy prices and GDP is expected to spike to 6.1%.

Between those extremes, Western provinces will likely benefit from continued strong energy prices and above normal rates of precipitation that will help spring crop planting efforts.

Alberta continues to lead the way in growth with average GDP growth of 3.7%. Oil prices are expected to back off but remain stimulative in the next two years. The energy sector makes up one quarter of Alberta’s economy, employs one in six people in the province and generates nearly a third of all provincial government revenues.

Saskatchewan is also benefiting from strong energy prices and improving government finances. The province is expected to generate a healthy 3% in the coming year, with energy and minerals leading the way. Strength in household and agricultural sectors along with potash and uranium production running at capacity, are all cited by RBC economists as positive growth drivers for the province in 2005. Saskatchewan has the highest exposure of any province to production of metallic and non-metallic minerals and is expected to continue benefiting from high commodity prices.

Last of the healthy growth provinces is Manitoba, with GDP growth pegged at 3.2% in 2005. The province has perhaps the most diversified economy, helped by high hog prices, strong supply and demand conditions for electricity, positive spring planting conditions and healthy demand for food processing operations.

Interestingly enough, bus manufacturing is also cited as a growth driver in RBC’s report. According to the province, the value of 2003 shipments totalled approximately $1.95 billion. The sector, not including aerospace manufacturing, employs approximately 7,700 people in manufacturing inter-city coaches and transit vehicles, motor homes, fire engines, step vans and a wide range of semi-trailers and components.

Major risks to the outlook for Manitoba are the weather, which would affect both electricity and agriculture and potential for U.S. protectionism measures.

Heading east, growth is expected to moderate somewhat. The outlook report calls for healthy but slowing growth in Ontario as a result of structurally driven deficits and a slowing housing market. The strong dollar is also expected to put downward pressure on manufacturing in Quebec, setting the province up for a slowdown. Ontario GDP is projected to grow at 2.4% in 2005 and 3% in 2006, while Quebec is expected to slip to 2.2% and 3% in 2005 and 2006 respectively.

Healthy job numbers are holding GDP around 2.4% in Nova Scotia. Wright says the province has also built up momentum enough to work on closing the gap with the national average going forward. The report suggests Nova Scotia’s GDP will probably accelerate to 2.8% in 2006.

Similarly in New Brunswick, GDP growth will likely weigh in around 2.5%, boosted by a shift from housing to strong manufacturing and retail sector growth.

Filed by Kate McCaffery,


Kate McCaffery