September 26, 2012

Forecasts predict west to lead Canadian growth

RICHARD GILBERT

staff writer

Several new forecasts predict the western provinces will lead Canada in economic growth for 2012, while the expansion in the rest of the country slows down.

“As was the case in 2011, we expect growth rates to vary considerably from province to province. We forecast Western Canada to continue to lead the way, with rates above the national average,” said the September 2012 Provincial Outlook produced by RBC Economics.

“These provincial economies benefit the most from strong activity related to commodities. The Prairie provinces also enjoy strong gains in their agricultural sectors with the U.S. drought sending crop prices significantly higher.”

RBC Economics, the Conference Board of Canada (CBC) and TD Economics estimate that real Gross Domestic Product (GDP) expanded by 2.1 per cent in 2012.

All of these reports trimmed estimates of growth due to the recession in Europe, the lack of recovery of the U.S economy, the Chinese economy cooling off, the slowdown in commodities markets and reduced spending by the Canadian government and households.

As a result, both RBC Economics and the conference Board of Canada expect the Canadian economy to expand by 2.4 per cent in 2013.

However, TD Economics predicts that economic growth will fall slightly to 2.0 per cent nationally next year.

Despite the lower price predictions for commodities, resource-based Alberta and Saskatchewan are still forecast to perform better than the rest of the country.

Alberta is expected to lead the country in 2012 with moderate economic growth of 3.8 per cent (RBC and CBC) and 3.4 per cent (TD Economics).

Economic growth in Alberta is expected to slow down in 2013 to 3.6 per cent (RBC), 3.0 per cent (CBC) and 2.8 per cent (TD Economics).

All of these predictions represent a reduction in Alberta’s growth rate, which was at a five year high of 5.2 per cent in 2011.

“Megaprojects in the oilsands continue to fuel unprecedented capital investment spending in the province, although recent volatility in global energy markets has given way to increased caution in the industry and some announced delays,” said the RBC report.

“At this point, we do not expect any significant change in conditions that would undermine expenditures this year, but the emergence of a more cautious approach to oilsands development may curb spending in the medium term.”

Saskatchewan is also forecast to have moderate growth in 2012 of 3 per cent (TD Economics), 3.6 per cent (RBC Economics) and 2.4 per cent (CBC).

In 2013, the pace of growth is expected to increase to 3.4 per cent (CBC) and 4 per cent (RBC Economics).

However, TD Economics predicts economic growth will slow down to 2.7 per cent.

According to RBC Economics, weakening global demand from Europe as well as emerging economies like China has put downward pressure on the price of non-food commodities, such as oil and potash.

With respect to potash, this has resulted in delays and/or scaling back of capital expenditure projects by some companies.

For this reason, construction activity will be slower than expected in 2012.

In B.C., economic growth in 2012 is predicted to be 2.3 per cent (RBC Economics), 2.1 per cent (TD Economics) and 2.3 per cent (CBC).

The CBC report said the European debt crisis is impacting B.C.’s economy through a number of channels, including lower import demand from China and a deceleration in the growth of both the manufacturing and forest industry.

Private investment is expected to increase in the next two years, but a sharp reduction in government spending will offset some of these gains.

Residential investment will continue to expand, which will help boost construction output by about 3.0 per cent in 2012 and 2013.

“British Columbia’s growth prospects will receive a boost in 2013 from two major projects: the federal government’s $8 billion order (over eight years) with Vancouver-based Seaspan Marine for seven non-combat ships and the $3.3 billion modernization of Rio Tinto Alcan’s aluminum smelter in Kitimat,” said the RBC report.

In 2013, economic growth in B.C. is predicted to increase to 2.7 per cent (RBC Economics) and 2.8 per cent (CBC).

However, TD Economics is expecting a slight reduction in growth to 2.0 per cent next year.

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