Even if Alberta runs a big deficit, it would take decades before it's in
the same debt situation as Ontario
TORONTO, Feb. 17, 2015 /CNW/ - Falling oil prices and a now-weaker
Canadian dollar have turned the tables on the outlook for provincial
economies, finds a new report from CIBC World Markets.
"A dramatic drop in oil prices, juxtaposed against a still-healthy U.S.
economy, has turned the tables on relative provincial growth, with
Alberta at risk of a recession but central Canada's prospects
brightening," says Avery Shenfeld, Chief Economist, CIBC World Markets,
in a report co-authored with Economist Nick Exarhos. "We forecast
Alberta to post the biggest budgetary shortfall, but it still remains
the best positioned to weather the storm."
Alberta appears headed for a mild and short-lived recession, with at
least two quarters of negative growth, the report says.
Real GDP in Alberta is forecast to contract by 0.3 per cent in 2015
before recovering to 2.3 per cent growth in 2016, the report says.
Economic growth in 2014 is forecast at 4.1 percent. The unemployment
rate in Alberta is expected to climb to 6.8 per cent from 4.8 per cent
in 2014. Housing starts are forecast to decrease from 40,600 units in
2014 to 28,000 in 2015 and 34,000 in 2016.
The hit to Alberta's GDP growth will be less about producing fewer
barrels and more about the squeeze on capital spending in the energy
sector, the report says.
"There are some offsets, as the province's non-energy exporters will be
helped by the weaker currency and its domestic spending will be
supported by interest rate cuts," says Mr. Shenfeld, who forecasts oil
prices to recover in the medium term. "Furthermore, Alberta can
withstand the economic weakness given its strong fiscal position."
Indeed, even if Alberta ran a $5-billion deficit year after year and its
economy grew at a nominal rate of just 1 per cent after 2016, it would
take five decades for Alberta to reach the same debt/GDP ratio that
Ontario planned for last year, the report says.
In central Canada, both Ontario and Quebec "could end up with a revenue
fillip" - thanks to strengthening U.S. demand and the additional lift
that exports will garner from a weaker Canadian dollar, the report
says. For example, a 1 per cent acceleration in U.S. growth typically
adds about 1.2 percentage points to Ontario's real GDP.
Mr. Shenfeld forecasts nominal GDP for both provinces to run about a
half point above their original projections and those recently released
in mid-year updates. "Both of these central Canadian provinces are
budgeting for virtually no spending growth in an effort to contain
borrowing needs, a tough bar to meet," he says. "The additional revenue
might therefore give a bit of spending elbow room that will make the
2015-16 deficit targets easier to attain."
Ontario's economy is forecast to grow from 2.1 per cent in 2014 to 2.8
per cent this year and next, with the jobless rate declining steadily
to 6.6 per cent in 2015 and 6.4 per cent in 2016. The unemployment rate
in Ontario last year averaged 7.2 per cent.
Quebec real GDP growth is forecast to grow to 2.4 per cent this year and
2.6 per cent in 2016, up from an estimated 1.8 per cent in 2014. The
jobless rate is expected to decline from 7.8 per cent last year to 7.2
per cent in 2015 and 6.7 per cent in 2016.
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/if_cdnprovinces.pdf
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SOURCE CIBC World Markets
For further information:
Nick Exarhos, Economist, CIBC World Markets Inc. at (416)-956-6527, email@example.com or
Caroline Van Hasselt, Director, External Communications, (416) 784-6699, or firstname.lastname@example.org.