Economic growth to remain unbalanced

Rising commodity prices will continue to drive growth in most provinces, while traditional manufacturing economies are expected to languish, according to the Conference Board of Canada’s latest quarterly Provincial Outlook report.

“Not all provinces are being lifted by the rising tide of high commodity prices,” says provincial outlook associate director, Marie-Christine Bernard. “Surging global demand will benefit resource-rich provinces, but the continued strength of the loonie will constrain provincial economies that are manufacturing and export-driven.”

The Conference Board is predicting commodity prices will remain strong, flooding resource rich provinces with additional cash. At the same time, however, foreign buyers will be forced to do business in Canadian dollars, thus maintaining the currency’s high value. The pricey dollar in turn will make manufacturers’ exports less competitive overseas.

After spending last year at the bottom of the list, Newfoundland and Labrador is predicted to be home to the highest growth rate in the country. Full-scale production at the Voisey’s Bay and White Rose mining sites and offshore energy projects will continue to drive the provincial growth rate to 6.4% in 2006.

Alberta, long the home of Canada’s energy industry, is expected to see an added boost from the consumer sector early in 2006 when Albertans start to spend their $400 “Ralph bucks” cheques. Alberta’s economic growth rate is expected to hit 4%.

The report says British Columbia’s construction boom should continue, although growth is expected to dip slightly to 3.3%.

Saskatchewan and Manitoba are expected to benefit from improved grain prices and the reopening of the U.S. border to live cattle shipments. Saskatchewan is also home to a healthy energy industry and should see growth of 2.4%. Manitoba is seen doing a little better than that, with growth of 3%.

Canada’s traditional manufacturing base, however, is seen lagging the overall national growth rate. On top of the high dollar, manufacturers will face higher input costs due to elevated commodity prices. Ontario may see these negative forces mitigated by strong consumer demand and industrial upgrades of machinery. Growth in the province is expected to reach 2.7%.

In Quebec, consumer demand could be drying up, along with the housing market, limiting growth to 2.2%. Further east, New Brunswick’s construction industry is seen boosting growth to 2.4%, while the service sector will help Nova Scotia reach 2.2% and Prince Edward Island could see growth of 2.1%.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com