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April 2008
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No provincial economy immune from U.S. malady
- The growth gap between the commodity-rich western provinces and manufacturing-heavy central Canada is expected to persist in 2008, but narrow in 2009.
- All provinces have lessened their exposure to U.S demand by diversifying their exports to other international markets like China. Export diversification will help mitigate some of the impact of a weaker U.S. economy, but in no way will it provide immunity from the spillover effects of slower U.S. demand.
- The hit to exports will disproportionately affect Ontario both because of its relatively heavy reliance on U.S. demand for its products as well as the unfavourable composition of those exports - autos and forestry. The heavy drag from Ontario’s trade sector will see the province teeter on the brink of recession through 2008.
- Saskatchewan is expected to be the growth leader in 2008 as its economy benefits from strength in energy and mining, while Newfoundland is expected to be the laggard as waning oil production weighs on growth in that province.
- Provincial governments are approaching budget season with a more cautious tone this year as fiscal coffers, albeit still healthy, are not as rich as they have been in the last few years.
- Labour markets are still tight, but we expect some slack to emerge in 2008 as companies adjust to a slower growth environment and trim their operations. The domestic economy is expected to soften but remain healthy as income growth is likely to slow in every province.
- Housing affordability is poised to improve across the country this year on the back of falling mortgage rates and cooler house price gains. House price growth is expected to move into the single-digit range in every province by year-end.
- Every province except Saskatchewan is likely to see a decline in new home construction in 2008. Saskatchewan will continue to benefit from a migration surge in 2008 before housing activity simmers down in 2009.
- The U.S. slowdown has not dented the bullish spending intentions of provincial governments and businesses across the country. Capital investment (private and public) is poised to rise a solid 5% in 2008.
- The high-growth provinces of the last few years – British Columbia and Alberta - are paring back their spending plans. The focus now shifts eastward to Manitoba and Saskatchewan with each expecting 18% gains in new spending initiatives in 2008.
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