Québec economy solid but will underperform national average in next two
years: CIBC World Markets Inc.

Other provinces playing catch-up in 2010

MONTREAL, Jan. 28 /CNW/ - While Québec's economy has outperformed the national average in the past two years, weakness in key sectors will see growth drop below the national average in 2010 and 2011, finds a new report from CIBC World Markets Inc.

"Québec's 2009 real GDP decline was less acute than that of its Central Canada cousin," says Warren Lovely, senior economist in CIBC's latest Economic Insights report. "In fact, Québec's growth edge vs Ontario was the largest in nearly two decades. But having sustained less damage, Québec looks to relinquish its edge in the initial stages of recovery."

Mr. Lovely expects GDP growth in the province to climb 2.2 per cent in 2010 and 2.7 per cent in 2011, just below the national average of 2.3 and 3.0 per cent. "Absent a heavy reliance on autos, Québec's diverse manufacturing base suffered less damage (in the recession). Still, forestry remains an industry in decline, aluminum is challenged by new global capacity, and refining output has been scaled back. Aerospace demand has also softened."

He notes that the economy has benefited from timely and effective fiscal stimulus, with public sector projects driving investment and job creation. As in other parts of the country, government will continue to lend support in 2010. "Overall, the province has seen a significantly smaller rise in joblessness," adds Mr. Lovely. "This relatively stronger labour market supports consumer demand and housing, although past outperformance means there's less easy ground to be regained."

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. Solid job prospects will continue to spur in-migration, with population growth stronger than at any time in the past 30 years.

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.

A newfound availability of cost-effective inputs, alongside a recovery in commodity prices, is sparking re-investment in Alberta. But a still-tentative consumer suggests that the province will be slower to re-accelerate in 2010 seeing GDP growth at 2.4 per cent for the year. However, by 2011 growth is expected to reach 4.2 per cent, tops in the country, just ahead of Saskatchewan.

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

    
    Real GDP Performance
    -------------------------------------------------------------------------
    Y/Y %        Actual                        CIBC Forecasts
                  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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