RBC revises provincial economic outlook

(May 20, 2004) The Canadian economy is expected to slow over the course of 2004 and into 2005, with recent high-flying provincial economies suffering the greatest setbacks, according to RBC Economics’ Provincial Outlook report.

The report identifies Saskatchewan and Newfoundland and Labrador as the weakest overall economic performers. This comes on the heels of two consecutive years of Newfoundland leading the country, thanks to offshore oil production.

“The unlikelihood of last year’s high production volumes at Hibernia and Terra Nova being repeated, coupled with the government’s determination to trim spending and pay down its mounting $959-million deficit, contribute to the province experiencing considerably slower growth,” said Derek Holt, assistant chief economist, RBC. “The province’s growth will be further hampered as these transfers will be lower than expected this year due to weaker economic performance in Ontario.”

While a recovering U.S. economy is seen helping Ontario’s huge export-based economy, growth is expected to be constrained by budgetary belt-tightening, which may stifle much needed infrastructure spending.

“Over the longer term, a growing constraint on the economy is weak spending on infrastructure — for which Ontario already ranks close to the bottom of the pack among all provinces as well as states in North America,” said Holt. “This situation is of concern as massive investments required over the next decade in areas such as power generation are unlikely to be fulfilled by a cash-strapped government.”

Friendly Manitoba is expected to lead the country in economic growth in 2004, with GDP growth of 4.1%, according to the RBC Economics report. Growth for the province is expected to fall back to a respectable 3.1% in 2005, when British Columbia is seen leading with 3.5% growth.

The report blends data predictions — including employment growth, unemployment rates, retail sales, housing starts, international exports, manufacturing output and the consumer price index — to arrive at an assessment of each province’s economic health.

Alberta is seen as the lead job-generator, with employment expected to rise by 2.4% this year. The report expresses concern over the agricultural sector, already struggling under a U.S. ban on Canadian beef and poor growing conditions.

“The lack of rain in some of Alberta’s crop growing regions and uncertainty surrounding mad cow disease and the related export restrictions to the U.S. present significant challenges,” said Holt.

Nova Scotia is predicted to be the weakest economy in Canada over 2004-2005. Employment growth is seen hovering at 1.3% over this period, with last place 2004 GDP growth of 2.3%.The picture improves somewhat in 2005, when Nova Scotia should pass Prince Edward Island and Newfoundland for growth.

Lower production of natural gas and the relatively high value of the Canadian dollar are predicted to hurt Nova Scotia’s exports of gas and seafood. The other maritime provinces can also expect their seafood exports to decline.

“In 2003, Nova Scotia had Canada’s weakest economy and conditions point towards only a modest improvement this year,” said Holt. “Downward revisions to consumer spending, investment activity and energy prospects are only the tip of the province’s economic iceberg.”

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