Alberta's economic growth to lead Canada in 2011: CIBC World Markets Inc.

Weak consumer confidence holding back growth in 2010

CALGARY, Jan. 28 /CNW/ - A recovery in commodity prices and a newfound availability of cost-effective inputs will drive Alberta's economic recovery in 2010 but a still-tentative consumer is holding back economic growth, finds a new report from CIBC World Markets Inc.

The report notes that a rebound in the global economy bodes well for resource development in Alberta as well as in most of western Canada but that growth in the province will lag behind Saskatchewan, B.C. and Newfoundland and Labrador this year. "The West will reap the benefits of reinvigorated Asia-Pacific growth," says Warren Lovely, senior economist in CIBC's latest Economic Insights report. However he says "a still-tentative consumer suggests Alberta will be slower to re-accelerate in 2010."

Mr. Lovely expects GDP growth in the province to climb up 2.4 per cent in 2010 and 4.2 per cent in 2011, which we lead the country. He believes in addition to a resurgence in demand for commodities, last year's cooling in once-overheated housing markets, wages and material costs is driving economic renewal in the province.

"It was the West, after all, that earlier sparked concerns of a housing bubble and labour shortages. A global financial crisis and resource price skid put an end to Western Canada's housing boom, but in recent months, housing activity has re-accelerated. Business investment is likewise returning. The stage is again set for economic outperformance." He says this is a big turnaround from 2009 when the global recession saw demand and prices for resources plummet. This resulted in Alberta and the other commodity-based provinces taking four of the bottom five spots in real GDP growth in the country.

"The newfound availability of cost-effective inputs, alongside a recovery in commodity prices, is sparking re-investment. Expansion of the oil sands compensates for uncertainty in conventional natural gas, which faces competition from abundant shale gas elsewhere. A revised royalty regime could be an important offset here." He also believes that political momentum towards tough carbon standards appears to have faded, reducing the near term uncertainties to Alberta's carbon-intensive economy.

The report finds that the economic recovery will not be even across the country. On the back of strong oil, potash, agriculture and uranium sectors, Saskatchewan is expected to lead economic growth in the country in 2010 with GDP up 3.0 per cent. In 2011, growth will hit 4.1 per cent.

The B.C. economy will be the second strongest in 2010 with 2.8 per cent growth on the basis of strength in the resource sector. The province will also see a broadening and deepening of its export base, with expanded transportation infrastructure allowing the province to lever its Gateway to Asia status. Mr. Lovely does not see the end of Olympics spending as a significant drag and notes that the adoption of a harmonized sales tax should boost investment and spur productivity growth.

Newfoundland and Labrador is forecast to see a big rebound this year with its GDP climbing 2.6 per cent as output recovers from production difficulties that plagued 2009. The economy also benefits from strong consumer spending and business investment. Barring disruptions, growth in 2011 should strengthen further to 3.3 per cent, with large energy projects having the potential to deliver strong growth longer-term.

In badly hit Ontario, inventory restocking will see GDP growth in 2010 beat the national average for the first time since the Canadian dollar began its appreciation in earnest. That resurgence may be temporary, however, as an overvalued Canadian dollar and a reversion to slower U.S. growth is likely to weigh on the economy. A harmonized sales tax, alongside cuts to corporate taxes, will boost competitiveness and help lure jobs. A focus on emerging sectors, such as green power, also looks to pay dividends. Growth in Canada's banking sector also stands to benefit Ontario disproportionately.

Manitoba escaped the recession relatively unscathed, tabling a fourth straight year of above-average growth in 2009. With less ground to be made up, growth should run just in line with the national average in 2010 at 2.3 per cent, climbing to 3.1 per cent in 2011.

Recent outperformance in Québec and the Maritimes likely won't be repeated, with solid, if unspectacular gains due in 2010-11.

    
    Real GDP Performance

    -------------------------------------------------------------------------
    Y/Y %                                       CIBC Forecasts
                                    -----------------------------------------
                    Actual
                     2008            2009            2010             2011
    -------------------------------------------------------------------------
    BC               0.0             -2.2             2.8             3.4
    -------------------------------------------------------------------------
    Alta             0.0             -2.6             2.4             4.2
    -------------------------------------------------------------------------
    Sask             4.2             -1.7             3.0             4.1
    -------------------------------------------------------------------------
    Man              2.0             -0.2             2.3             3.1
    -------------------------------------------------------------------------
    Ont             -0.5             -3.5             2.4             2.8
    -------------------------------------------------------------------------
    Qué              1.0             -1.4             2.2             2.7
    -------------------------------------------------------------------------
    NB               0.0             -0.7             2.2             2.8
    -------------------------------------------------------------------------
    NS               2.2             -0.4             2.1             2.6
    -------------------------------------------------------------------------
    PEI              0.5             -0.5             1.8             2.4
    -------------------------------------------------------------------------
    N&L              0.5             -3.5             2.6             3.3
    -------------------------------------------------------------------------
    CDA              0.4             -2.5             2.3             3.0
    -------------------------------------------------------------------------
    U.S.             0.4             -2.5             2.8             2.4
    -------------------------------------------------------------------------
    Source: CIBC, Statistics Canada
    

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/sjan10.pdf

CIBC's wholesale banking business provides a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients.

SOURCE CIBC World Markets

For further information: For further information: Warren Lovely, Senior Economist, CIBC World Markets Inc. at (416) 594-8041, warren.lovely@cibc.ca, or Kevin Dove, Communications and Public Affairs at (416) 980-8835, kevin.dove@cibc.ca


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