Provincial economies poised for growth

But it warned ongoing debt problems in Europe could pose a risk if they are not resolved.

The board believes unemployment will continue to fall from this year’s average 7.4% rate to 6.4 in 2013. In raw numbers, the think-tank expects the economy to create 350,000 new jobs in each of the next two years.

The recovery is being led by Alberta, which is expected to post a 3.6% expansion next year, followed closely by Saskatchewan, slated to follow up this year’s 5.1% resource-led economic burst with a still-strong 2.8% advance next year.

Central Canada, hampered by soft U.S. markets for its manufactured goods, will continue to struggle with sluggish growth of about two per cent, according to the forecast.

Growth is projected to be under two per cent throughout Atlantic Canada, and weakest in Newfoundland at a barely noticeable 0.4%.

The think-tank notes there are considerable headwinds from abroad hitting Canada and the provinces unevenly, particularly a weak U.S. and the uncertain European future.

But Canada’s domestic fundamentals are sound, and should carry it through as long as Europe’s debt woes do not trigger another global financial crisis.

“Employment has recovered quickly from its recession levels, housing markets are balanced, profits have rebounded, and business investment has surged,” the report notes.

“Over the next two years, strong commodity prices will drive investment and production in the resource sector and help stimulate our domestic economy.”

The one exception, it adds, is government spending cutbacks that will trim about $3 billion from the economy next year.

The Conference Board adds one caution — and it is a big one — that Europe is able to fence in contagion.

“We make the (perhaps) brave assumption that the European Union, European Central Bank, and the IMF (International Monetary Fund) will be successful in propping up heavily indebted countries (and, if needed, European banks) and thereby mitigate negative impacts on global financial markets,” it states.

Economist Pedro Antunes said in an interview the uncertainty surrounding the forecast is greater than in most years, but that it is difficult to build in the eurozone risk into a baseline forecast.

“There’s a huge risk hanging out there, but at this point we are still hopeful,” he said.

“The problem is it’s not a sliding scale where if you balance the risks you have a forecast of instead of two per cent growth, it’s one per cent. It’s either the euro fails or it doesn’t … and you have two very different scenarios.”

Still, the Conference Board remains near the top of the scale of economic forecasts in Canada. The Bank of Canada, for instance, is projecting 1.9% growth next year, while Capital Economics thinks growth will be as low as 1.5%.

In a note Friday, Capital’s David Madani said, if anything, he believes the risk is for an even weaker performance next year despite better- than-expected numbers to wind up 2011.

“Considering the growing risk of a full-blown sovereign debt and banking crises next year, with a break-up of the eurozone now quite likely, our average annual growth forecast of 1.5% for 2012 might prove too optimistic,” he said. Madani also differs from the Conference Board in warning of a housing correction for Canada, thereby depriving the economy of a key engine of growth.

In a speech in Toronto, Finance Minister Jim Flaherty said the government is prepared for unfavourable conditions and will seek to keep its fiscal house in order by eliminating spending that does not help the economy.

“In uncertain times, the most important contribution the government can make to bolster confidence and growth in Canada is to maintain a sound fiscal position,” he said.