As Canada Day weekend approaches, I provide this timely, and broadly favorable economic news, (especially for western provinces), courtesy of RBC Economics.
Western Canada, subject to oil prices holding value, holds the card for the stronger rate of growth that RBC projects for the national economy for the remainder of 2017. Recoveries in Alberta and Saskatchewan should be the primary factor boosting Canada's growth from 1.5 per cent last year to 2.6 per cent this year.
These recoveries along with continued expansion in British Columbia and Manitoba will allow western provinces as a group to contribute to Canada's economic growth for the first time in three years. RBC maintains British Columbia at the top of its provincial growth rankings for the third consecutive year.
Steady as she goes in Central Canada
RBC sees little that would throw the economies of Ontario and Quebec off last year's course.
RBC expects consumers, who have been a force to reckon with lately, to continue to be a significant source of growth.
Governments will also pitch-in with significant infrastructure investment and other spending and tax measures, while exporters will find growing opportunities abroad. RBC expects sanity to return in Ontario's housing market.
Demographic boost to fade in Atlantic Canada
RBC projects growth slowing across the Atlantic region with Newfoundland and Labrador seeing activity contracting again after a short break last year.
The expected slowing of the pace in some cases reflects a diminishing contribution from major capital projects as construction work winds down. More generally, it reflects RBC's view that the boosting effect of last year's immigration wave across the region will fade this year.
B.C. keeping the lead after all
Not even a 40 per cent correction in the Vancouver housing market seems to rattle the province much.
With so few signs of a slowdown out there, RBC's previous forecasted growth rate of 1.9 per cent for 2017 looks overly pessimistic, and has been boosted to 3.0 per cent. This keeps B.C. at the top of RBC's provincial growth rankings for the third consecutive year.
Yet RBC continues to expect that housing-related activity will contribute less to B.C.'s expansion.
The softwood lumber trade conflict with the U.S. will weigh on provincial exports and the manufacturing sector.
For these reasons, RBC's view is that growth will moderate from the super-charged rate of 3.6 per cent in 2016 - a ten-year high - to 1.8 per cent 2018, when RBC sees renewed downward pressure on the housing market emerging in the face of rising interest rates.
Hard pressed to find signs of a slowdown
The B.C. labour market has been robust. Employment growth, at 3.6 per cent, is spectacular - far stronger than in any other province. B.C. has the second-lowest jobless rate (5.6 per cent as of May) in the country after Manitoba. Population growth is at a seven-year high thanks to wave of migrants coming from abroad and other provinces.
Sales of provincial retailers, wholesalers, manufacturers and restaurants continue to grow briskly - still leading the country in annual growth or ranking close to the top.
Residential construction activity remains exceptionally strong even though housing starts have come off their 23-year high recorded last year.
B.C. housing correction: is this it?
The latest news on the B.C. housing market indicates that last year's downturn may have run its course. RBC sees evidence that home resale activity in the Vancouver area, for example, has picked up this spring and that prices have begun to firm up again. RBC's view now is that the market will continue to recover gradually through the remainder of this year. This means that RBC no longer expects the housing sector to weigh on economic growth as much as it thought previously.
Still, RBC sees clouds forming over B.C. housing market again next year when we anticipate interest rates beginning to rise in Canada.
Major construction projects at risk?
The economic implications of the May 9 provincial election aren't fully clear at this point but risks have increased for a couple of major capital projects in the province.
The likelihood of a coalition government between the NDP and Green party puts into question the earlier nods given by the incumbent Liberal government to the $8.3 billion Site C hydroelectric dam and $7.4 billion Trans Mountain pipeline expansion.
Under a pact signed at the end of May, an NDP-Greens coalition government would "employ every tool available" to stop the expansion of pipeline and ask for further regulatory review of the dam project.
The risks to the economy of any delays or shelving of these projects are more about the medium to longer term prospects than an immediate hit. In both cases construction work was scheduled to be on a lower gear this year.
Risks still abound
Much of the turnaround story in Alberta and Saskatchewan rests on oil prices continuing to recover, and could be de-railed if global oil prices steadily weaken again.
Increased protectionist sentiments in the U.S. pose a substantial risk to all provinces and the upcoming renegotiation of NAFTA no doubt will generate a lot of uncertainty. The softwood lumber trade dispute poses an immediate threat to forest-dependent communities in B.C. and Quebec in particular.
All things considered, where on earth would you rather be than this peaceful, beautiful, prosperous, fair-minded land? And where better in the summer than the central interior of B.C.? Not too hot, not too cool. Just right!
Happy Canada Day!
Mark Ryan is an investment advisor with RBC Dominion Securities Inc. (Member-Canadian Investor Protection Fund). This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Mark can be reached at mark.ryan@rbc.com.
