Provincial economies to diverge in 2024: Desjardins

With much of the pain of higher interest rates still to come, the economic suffering will not be shared equally: Provinces with more interest-sensitive economies, such as Ontario and British Columbia, will be hit harder in 2024, while commodity producers, like Alberta, should be in a better shape, according to Desjardins Group economists.

In a new report, the firm said that, while it is forecasting a slowdown across Canada in the year ahead, provincial economic performance is set to vary widely.

“The Canadian provinces most exposed to housing and other interest‐rate‐sensitive sectors will feel the coming economic downturn most acutely, whereas commodity producers will be less vulnerable,” it said.

In particular, B.C. will be among the provinces hit harder as the effects of high rates continue to flow through the economy, given that its households are among the most heavily indebted, and its economy is most closely tied to housing.

“Weak labour market and retail sales data released since our last provincial outlook continued to point to an economy particularly impacted by the accumulated effects of higher borrowing costs,” the report said. It added that slower growth in China could also weigh on B.C.

Ontario’s economy is also expected to suffer a harder hit from the impact of elevated rates.

“Despite surging population growth, household consumption fell, which is unusual outside recessions,” the report said.

“At the same time, residential investment plunged,” it said. “Both components should continue to struggle under the weight of sharply higher interest rates in early 2024.”

Conversely, oil producers, such as Alberta and Newfoundland, should avoid the worst of the pain.

In fact, Newfoundland is seen leading the way in 2024, as “oil production is set to rise significantly in 2024 with the Terra Nova offshore field on track to return to full production after a multi‐year shutdown,” the report said.

Similarly, Alberta is expected to have one of the strongest provincial economies this year, as oil production is ramping up, and “[t]he outlook remains strong outside the oil and gas sector,” it said.

Quebec is also expected to rebound this year — following a weak 2023 — amid stronger homebuilding activity, rebounding hydro exports, and an end to labour disruptions in the province.

“We’ve revised Quebec’s growth forecast meaningfully higher for the year 2024,” the report said. “This largely reflects a bounceback effect, as the public-sector workers that were on strike at the end of 2023 returned to work in January.”