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March 25, 2013
West to lead the economic charge
The western provinces, led by Alberta, will have faster economic growth than the rest of Canada over the next two years, but British Columbia will lag behind the national average, says a recent report by RBC Economics.
“Provincial economies were not exactly hitting the ground running as we rolled in to 2013,” said the report by RBC economists Paul Ferley, Robert Hogue and Laura Cooper.
“In fact, most of them limped at best, as a host of factors conspired to undermine their performance in the latter half of 2012.”
According to RBC’s recently released Provincial Outlook, the bank has made a downward revision to its economic forecast for 2013 and 2014, due to weaker than expected growth in 2012.
One of largest revisions to the forecast is for B.C., which dropped to 1.6 per cent, but was previously expected to expand by 2.3 per cent.
Saskatchewan was revised to a 2.9 per cent growth rate from 3.5 per cent, while Alberta is forecast to grow by 3 per cent, which is down from the previous expected rate (3.5 per cent).
Changes to the other western provinces were comparatively smaller.
The Manitoba economy is expected to grow by 2.7 per cent.
B.C. is the only western province below the national average (1.8 per cent).
All eastern provinces remain below the national average, expect for Nova Scotia (1.9 per cent) and Newfoundland and Labrador, which was revised upward to 5.1 per cent from 4.4 per cent.
The report said “the Alberta economy clearly is in the midst of an impressive boom despite facing some constraints on its ability to deliver key products to markets.”
However, there are “some signs that non-residential construction might be letting up a little.”
In late February 2013, Statistics Canada’s Private and Public Investment (P&PI) survey report showed
that non-residential construction intentions are up by just 0.8 per cent in 2013.
This represents a big slowdown from average increases of 22 per cent in the previous three years.
In addition, there are concerns about rapidly rising energy production in the United States, the emergence of pipeline bottlenecks, and the so called ‘bitumen bubble’, which have been depressing Alberta’s heavy crude oil prices relative to global levels in late 2012 and at the start of 2013.
“We continue to believe that any let up in capital spending in areas, such as the oilsands this year, will be fairly short lived, marking a pause while pipeline issues are addressed and crude oil price relationships normalize,” said the report.
“The upcoming decision in the United States on the fate of the northern section of the Keystone XL pipeline project will provide a significant clue on the future investment prospects in the oilsands.”
The bank expects these clouds to clear to a large extent by next year, which will set the stage for stronger growth of 4.2 per cent in 2014.
The RBC economists had previously assumed B.C. would have strong non-residential investment in 2013, which would become a prime engine of growth in the province.
However, this assumption was not supported by the recent P&PI survey by Statistics Canada.
“While the survey confirmed the increased contribution of major projects in the manufacturing and transportation sectors, multi-billion dollar declines in spending intentions in the mining, and oil and gas industries were significant disappointments,” said the report.
“A meaningful boost to economic growth from capital investment activity may have to wait to 2014.”
However, RBC expects the B.C. economy will have some export gains in 2013, as provincial exporters benefit from improving demand from the US. In particular, the turnaround in housing construction, and the demand for lumber.
As a result, an increase in capital spending is expected next year, which will boost the B.C. economic growth to a rate of 2.7 per cent in 2014.
Newfoundland and Labrador was the fastest growing provincial economy in 2013 (5.1 per cent), with major capital projects on the agenda and a rebound in oil production.
Despite the boom-like conditions, economic growth is expected.
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