Not all parts of Canada are created equal. Differences in geography, natural resource endowments and industrial makeup mean economic growth rates routinely deviate from province to province. Nonetheless, today's divergences across any number of vital economic indicators–from real GDP growth to unemployment, from housing starts to retail sales–are truly immense.
Above all others, Alberta serves as the poster child for economic outperformance. Real economic growth there likely hit 7.5% in 2006–an impressive feat, though scarcely unprecedented for this high-growth province. Alberta stands in stark contrast to Ontario, which is home to more than 40% of national output. Not since the early 1990s recession has Ontario found itself at the back of the bus. But that's almost surely where Ontario will be when 2006 growth rates are finalized, with its muted 1.5% real GDP gain just one-fifth as fast as Alberta's.
What, then, of growth prospects for the year ahead? Quite simply, little progress will be made in narrowing this yawning gap. When it comes to economic growth, jobs or income, provinces rich in coveted natural resources will continue to reap the benefits of hearty overseas demand, much of it originating from a supercharged China and other rapidly growing parts of emerging Asia. Whether you ship to China or not, producing resources heavily demanded by the fastest-growing part of the world–be it crude oil, copper, zinc, uranium, fertilizer and even wheat–is a good business to be in. Positive spillovers abound.
Alberta will remain firmly cemented atop provincial growth charts. Development of the western province's vast oilsands continues despite some concerns over escalating costs. Past investments there are now translating into rising oil-production levels. Soaring home prices have generated massive personal wealth gains, while ongoing labour shortages will continue to spawn unparalleled wage growth. Housing and wage dynamics may make Alberta a bona fide inflation hot spot, but core inflation in Canada remains the very definition of a one-province problem.
British Columbia and Saskatchewan will also chalk up brisk expansions in 2007. A U.S. housing slowdown is hardly welcome in B.C., given that a disproportionate share of Canadian lumber exports originate there. As Canada's gateway to Asia, however, the Pacific province is uniquely positioned to capitalize on blistering expansions overseas. Resource-rich Saskatchewan is also benefiting handsomely from a sturdy global expansion. The province ranks as a key oil and gas producer, and it's the sole provincial player in the uranium industry, where a nuclear power-plant construction boom in Asia creates enormous potential. Manitoba's diversified economy, meanwhile, continues to churn out stable growth. Considering the robust growth in Canada's westernmost provinces, the old advice “Go west, young man” seems as apt today as it did 150 years ago.
Newfoundland and Labrador can expect to chalk up a hearty growth in 2007, once again a byproduct of resource-sector success. Energy projects colour prospects elsewhere in Atlantic Canada, with natural gas output set to rise in Nova Scotia and energy infrastructure driving investment in New Brunswick.
But in Central Canada, things likely won't improve much in the year ahead. History shows that growth rates in Ontario and Quebec correlate more closely with stateside trends than in any other part of the country. That's a gift when America's economy steams ahead, but cuts the other way when, as we're seeing now, U.S. consumer spending grows cold. And the Canadian dollar's unprecedented surge is causing export opportunities in the vital U.S. market to dry up.
Ontario's auto sector still attracts new investment, and produces more vehicles than anywhere else in North America. But production has declined just the same. Most striking, Canada has recently sported a deficit in net auto trade for the first time in 15 years. Meanwhile, Quebec's forestry sector is savaged by a strong currency and crumbling U.S. housing market, which undercut demand and leave lumber prices languishing. Call it Dutch Disease or industrial realignment, but the tide has turned for some long-standing stalwarts of the Canadian economy.
By 2008, as the United States leaves a mid-cycle correction behind, Central Canada should pick up again. But even then, growth will still fall short of the sturdy pace expected in western provinces. Canada will be characterized by disparate provincial growth for some time yet.
Warren Lovely is executive director and senior economist at CIBC World Markets in Toronto