Disparity in Canadian Regional Economic Performance Continues - BMO Capital Markets



    Gap should narrow in 2009 when the U.S. economy - and Central Canada -
    recovers

    TORONTO, July 3 /CNW/ - 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, according to the new Provincial
Monitor report from BMO Capital Markets Economics.
    "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 Michael Gregory, Senior Economist, BMO
Capital Markets.
    The resource-rich provinces were the clear-cut GDP growth leaders again
in 2007. Newfoundland & Labrador led the country with a 9.1 per cent surge,
thanks to strong offshore oil output and a rebound in production at the
Voisey's Bay nickel mine following strike activity in 2006.
    Western Canada also rode commodity prices to another year of
above-average real GDP growth, with the four provinces west of Ontario
averaging 3.1 per cent, helped by a favourable mix of energy and mining output
and exploration and construction activity. Meantime, economic growth in
Central Canada and the Maritimes was below the national rate in 2007 as rising
fuel costs, a strong Canadian dollar and slowing U.S. economy dragged on
manufacturing.
    This regional disparity continues, though more the result of a pronounced
slowdown in Central Canada than accelerating growth in the West. The bulk of
the weakness is in manufacturing and export-heavy Ontario and Quebec, where
GDP growth will likely dip below 1 per cent for the first time since the
1990s. On average, western provinces are expected to grow 1.6 percentage
points faster than in the East, up from 1.2 percentage points last year
(excluding volatile Newfoundland & Labrador). This gap should narrow in 2009
when the U.S. economy - and Central Canada - recovers.
    One trend that has started to reverse is the flow of migrants. Net
interprovincial migration to Alberta hit a record 58,200 people in 2006, with
many leaving Atlantic Canada in search of high-paying jobs. 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. 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.
    Canadian housing market activity has cooled sharply so far in 2008,
confirming that the multi-year housing boom has indeed fizzled, particularly
in the formerly white-hot West. National existing home sales were down 13 per
cent year-over-year through May. The breadth of the declines is eye-catching,
with 9 of 10 provinces seeing sales below year-ago levels through
May-Newfoundland & Labrador is the exception-and 19 of 20 major markets down
in May. The most pronounced declines have been in Alberta and B.C., with
Saskatchewan also starting to lose momentum.
    While sales are falling, new listings continue to rise, led by a whopping
58 per cent jump in Regina - the country's latest hot-spot. But with sales in
the city down an almost equally whopping 28 per cent year-over-year,
Saskatchewan's white-hot housing market is quickly balancing out, and downward
price pressures like the ones we've seen in Alberta in the past year are
likely to take hold in the coming months. Prices in Calgary and Edmonton are
now down 2.4 per cent and 4.8 per cent year-over-year respectively, joining
layoff-ridden Windsor as the only three cities with prices in the red.
    Canada's western-led housing boom looks to be over, and the days of 40
per cent-plus price appreciation in Alberta are behind us and soon to be
behind us in Saskatchewan as well. However, thanks to still-solid job growth,
strong underlying economic fundamentals and more conservative lending (i.e.:
no explosion in subprime mortgages), a balancing period is likely rather than
a U.S.-style collapse.
    The regional disparity is also evident on the fiscal front. Overall, the
Canadian provinces continue to see black ink, with all but PEI expecting
balanced budgets or surpluses for both the 2007/2008 and 2008/2009 fiscal
years. The combined provincial surplus is pegged at just under $3 billion this
year - excluding $750 million allowances in B.C. and Ontario - down from
nearly $9 billion last year, largely due to smaller figures in B.C. and
Alberta.

    Provincial Growth Forecasts

    British Columbia:
    Economic growth in B.C. will slow to 2.2 per cent this year after 3.1 per
cent growth in 2007, as headwinds in forestry work against a sturdy consumer
and booming resource sector. A rebound is expected in 2009 as the U.S. economy
recovers.

    Alberta:
    While Alberta was unseated as the growth leader last year, and should
slow to 2.6 per cent this year, the province remains one of the engines
driving Canada's economy, and above-average growth is expected through 2009.

    Saskatchewan:
    Saskatchewan's momentum should continue this year, with real GDP growth
likely accelerating to 3 per cent, before losing some steam in 2009.
Saskatchewan boasts Canada's hottest economy, with nominal GDP ballooning
11.4 per cent last year, and the province leading in retail sales growth and
housing market performance.

    Manitoba:
    Manitoba posted another year of solid 3.3 per cent real GDP growth in
2007, as construction activity and a sturdy manufacturing sector buoyed the
province's economy. While the strong C$ and U.S. slowdown are weighing on
growth this year, the diversity of the manufacturing sector, mining activity
and aggressive capital spending will all help moderate the slowdown in
Manitoba to 2.1 per cent.

    Ontario:
    The Ontario economy is struggling against the backdrop of a strong
Canadian dollar, high energy costs, and a U.S. downturn. While real GDP growth
was a moderate 2.1 per cent in 2007, the sputtering manufacturing sector will
likely drag down growth to 0.2 per cent this year before rebounding in 2009.

    Quebec:
    The Quebec economy grew at a healthy 2.4 per cent clip in 2007, boosted
by strong domestic activity. However, momentum is fading this year as the
surging loonie and U.S. housing recession chip away at manufacturing, with
real GDP growth likely to slow to 0.6 per cent before rebounding in 2009.

    New Brunswick:
    New Brunswick posted below-average 1.6 per cent real GDP growth in 2007,
as the negative impacts of the surging C$ and slowing U.S. economy offset an
upbeat mining sector. The story should remain the same this year, with growth
slowing to 1.2 per cent as U.S. export demand softens further.

    Prince Edward Island:
    Economic growth in PEI should slow to 1 per cent this year as consumer
activity gives back some of its strength and the U.S. downturn continues.

    Nova Scotia:
    As in much of Atlantic Canada, Nova Scotia's economy is being supported
by robust construction spending while facing stiff manufacturing headwinds. As
a result, growth likely slipped modestly to 1.4 per cent this year, but should
rebound in 2009.

    Newfoundland & Labrador:
    Newfoundland & Labrador led the country in economic growth in 2007, with
real GDP rising a torrid 9.1 per cent amid a rebound in offshore drilling and
mining activity. This year, that boost will wear off and pull growth down to a
below-average 0.9 per cent, but the underlying trends still look good.

    The complete report can be found at www.bmocm.com/economics.





For further information:

For further information: Media Contacts: Peter Scott, Toronto,
PeterE.Scott@bmo.com, (416) 867-3996; Lucie Gosselin, Montreal,
lucie.gosselin@bmo.com, (514) 877-8224; Laurie Grant, Vancouver,
laurie.grant@bmo.com, (604) 665-7596; Internet: www.bmo.com


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