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October 2008
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Provincial outlook - On a knife’s edge
The recent dramatic turn for the worse in the year-long financial market crisis has clearly darkened the outlook for the provinces. The U.S. economy appears to have succumbed to a recession, with Europe, the United Kingdom and Japan also sinking fast. While Canada is in a better position with its financial sector less heavily impaired, overall economic growth will be substantially weaker than previously anticipated.
This fast-deteriorating context will necessarily affect the economic performance of the provinces in the period ahead. Central Canada is quite possibly the most at risk given its close dependence on dwindling U.S. demand, although a negative impact will be felt across the board. Fortunately, some provinces — e.g., Saskatchewan, Manitoba, New Brunswick — will be able to count on other positive factors that are expected to provide powerful offsets.
Our forecasts are based on the assumption that the historic actions being taken by central banks and governments around the world will ultimately be successful in restoring investor confidence and bringing some normalcy to financial markets. The weight on global economic activity will, thus, be gradually lifted, setting the stage for a recovery during the latter part of 2009.
- With its economy firing on most cylinders, Saskatchewan is leading the way this year and we expect it to remain at the front of the pack in 2009. Manitoba will be close behind. Both provinces are riding the wave provided by the strong demand and prices for their key commodities.
- The boom in commodities and the attendant rise in capital investment are also fuelling growth in most of Atlantic Canada. Positive repercussions are being felt in the labour markets, migration flows, consumer spending and the housing sector, particularly in the case of Newfoundland & Labrador. The region’s economy should continue to display resilience against the unsettling turmoil raging elsewhere and sustain a moderate pace of expansion — except Newfoundland & Labrador this year where flat crude oil production will temporarily halt economic growth.
- Conditions in the most western part of the country are much less encouraging, at least compared to earlier expectations. While strong capital expenditures still form a solid base for economic activity, clear signs of cooling have emerged in other sectors. Eroding housing situations and rapidly slowing growth in consumer spending have prompted us to revise our growth forecasts for British Columbia and Alberta lower.
- As weak external trade continues to exert a toll on the economies of Ontario and Quebec, cracks are now showing in their domestic foundations. A softening in job creation, consumer spending and housing activity will have a notable slowing effect in these provinces. As the province most vulnerable to the U.S. vortex, Ontario will likely see its growth evaporate. In Quebec, strong capital investment (led by public infrastructure spending) should help the economy stay above water.
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