July 06, 2008

OTTAWA - The gaping regional economic divide between the West and the rest will widen even further this year as high commodity prices cushion the resource-rich western provinces from the deepening slump in the U.S., which is dragging down the other provinces, especially in the export-oriented manufacturing heartland of Ontario and Quebec, forecasters warned Thursday.

OTTAWA - The gaping regional economic divide between the West and the rest will widen even further this year as high commodity prices cushion the resource-rich western provinces from the deepening slump in the U.S., which is dragging down the other provinces, especially in the export-oriented manufacturing heartland of Ontario and Quebec, forecasters warned Thursday.

"The disparity in Canadian regional economic performance continues unabated, with surging commodity prices supporting growth in the West, and the strong Canadian dollar and slowing U.S. economy depressing manufacturing-heavy Central Canada," BMO Capital Markets said in its provincial forecast.

But it will be a more a case of weakness in Central Canada than strength in the West, it added.

"While most provinces will lose momentum this year, record oil prices and the U.S. downturn will hit Central Canada particularly hard, keeping this regional disparity intact," said BMO economist Michael Gregory.

"On average, western provinces are expected to grow 1.6 percentage points faster than in the East, other than in Newfoundland, up from 1.2 percentage points last year," he said.

Growth in Ontario and Quebec will likely will likely dip below one per cent for the first time since the 1990s, it said.

However, that gap should narrow in 2009 when the U.S. economy and Central Canada recovers, it added.

One trend that has already started to reverse is the flow of migrants, BMO said.

"Net interprovincial migration to Alberta hit a record 58,200 people in 2006, with many leaving Atlantic Canada in search of high-paying jobs," it noted. "However, late 2007 saw a sharp reversal in this pattern, with Alberta recording its biggest quarterly outflow since 1988 and Atlantic Canada experiencing in-migration and accelerating population growth."

That would seem to be good news for Atlantic Canada.

However, Gregory noted that the reversal in migration flows might fall short of what employers in Atlantic Canada need.

"With a number of construction projects on tap, Atlantic Canada could be at risk of facing its own skilled-labour shortage, making for some interesting competition for workers between the West and East," he said.

Meanwhile, RBC Financial Group also forecast that the Canadian economic divide will continue this year but should ease next year.

"Record-high commodity prices and strong global demand for resources sustain unprecedented prosperity in the western provinces, while the strong Canadian dollar, downturn in the U.S. economy and high energy prices continue to cause hardship in key sectors in provinces east of Manitoba," it said.

"Saskatchewan is projected to lead all of the provinces in economic growth for both 2008 and 2009, followed by Alberta, while Newfoundland and Labrador and Ontario are expected to lag the group this year, but should show some improvement next year."

RBC's provincial growth projections for 2008 and then 2009 are:

Saskatchewan 3.7 per cent and 3.8 per cent, Alberta 3.1 and 3.0, Manitoba 2.7 and 2.7, British Columbia 2.2 and 2.9, New Brunswick 2.0 and 2.5, Nova Scotia 2.0 and 2.4, Prince Edward Island 1.2 and 1.6, Quebec 1.0 and 2.3, Ontario 0.7 and 2.2, Newfoundland and Labrador 0.2 and 1.3.

BMO's provincial growth projections for the two years are: Saskatchewan 3.0 and 2.5, Alberta 2.5 and 2.9, British Columbia 2.2 and 2.7, Manitoba 2.1 and 2.5, Nova Scotia 1.4 and 2.5, New Brunswick 1.2 and 2.2, Prince Edward Island 1.0 and 1.9, Newfoundland and Labrador 0.9 and 2.6, Quebec 0.6 ad 2.1 and Ontario 0.2 and 2.0.

BMO also projected that the regional economic divide will be reflected on the fiscal front, with the weakness in their economies wiping out the budget surpluses of both Ontario and Quebec, leaving them with balanced budgets. All the other provinces, other than Prince Edward Island are expected to have budget surpluses, led by $1.568 billion in Alberta, which is down from more than $4 billion last year.

Ontario Finance Minister Dwight Duncan on Thursday conceded the province's economy is now expected to be weaker than the government forecast in this year's budget, including a 0.3-per-cent contraction in the first quarter. However, he said that "it is still too early in the fiscal year to determine how this will affect the province's revenue and expense outlook" and that "it remains on track to achieve the balanced budget outlook presented in the 2008 budget."

Thursday, July 03, 2008
Eric Beauchesne
Canwest News Service
http://www.canada.com/topics/news/national/story.html?id=ce2ce091-58f5-4d18-bf6f-115247cccffd