Better times

But all is not so rosy.

Alberta and Saskatchewan still are licking painful wounds as a result of the 2014 collapse in oil prices, and both provinces continue to battle higher than usual unemployment and rising debt.

Ontario, poised to enjoy strong gains after years of economic anemia, could suffer if its crucial automobile manufacturing industry is ambushed by new protectionist rules from the U.S.

And Newfoundland and Labrador is facing a contracting economy.

Some provinces also face challenges linked to federal and provincial initiatives to curb carbon emissions. The federal program will impose a national carbon tax as of 2018, while some provinces are considering their own initiatives to deal with carbon emissions.

The single largest risks are emanating, unexpectedly, from Canada’s most important trading partner. The election of Donald Trump as U.S. president threatens major disruptions in economic and fiscal areas in which Canada previously enjoyed some predictability: trade, control over inflation and currency stability.

For now, however, the consensus is that Canada, as a whole, can look forward to an improving economy in 2017.

A report from the Conference Board of Canada anticipates an increase in real national gross domestic product (GDP) of 1.9%, up from an estimated 1.3% in 2016. The report cites modestly rising exports and business investment, an improving energy sector and a boost from the federal government’s stimulus spending.

Reports from Toronto-Dominion Bank (TD) and Bank of Montreal anticipate real GDP growth of 1.8% and 2%, respectively, this year.

Much of the forward momentum is being driven, perhaps somewhat surprising, by the improved outlook for manufacturing in several provinces that have suffered setbacks in this industry in recent years. Ontario’s economy, for example, is running into capacity limits as industries such as auto production enjoy healthy sales.

Service sectors and industries that typically improve when consumers have cash – such as health care, transportation, education and financial services – also are boosting Ontario’s economy. As well, real estate, growing demand from a healthy U.S. economy and a weaker loonie are positives for the country’s largest provincial economy.

Similar stories are emerging in Manitoba and Quebec, provinces in which manufacturing industries such as construction and transportation are growing and there is less drag from deficit-laden public accounts.

Quebec, in particular, has made significant progress on the fiscal front. Compared with a deficit of more than $2 billion in 2014, Quebec recently posted a surplus of $2.2 billion – a result of steep cuts by the province’s Liberal government. Employment gains in the province are running ahead of the country, as a whole, and Quebec’s unemployment rate, at 7%, is the lowest seen in the province in a decade.

Manitoba – despite its small population and relative lack of resources compared with its western neighbours – is expected to post real GDP growth of 2% this year, according to TD’s forecast. This matches the 2% growth the province should post for 2016 and is one of the highest growth rates in the country.

Positives for Manitoba include manufacturing and construction, including the $12- billion joint Manitoba Hydro/First Nations Keeyask generating station.

However, times still are tough in the oil-producing provinces of Alberta, Saskatchewan and Newfoundland and Labrador. The fallout from the 2014 collapse in oil prices continues to exert a drag.

Rising debt and deficits in these provinces are a concern, while unemployment rates are spiking upward in all three provinces, with Alberta’s unemployment rate in the 9% range.

Relief, however is on the horizon for Alberta. With oil prices beginning to rise again, recent pipeline approvals in both Canada and the U.S., as well as reconstruction underway at Fort McMurray following the devastating fires of 2016, the province is expected to show real GDP growth of more than 2% in 2017 and 2018.

Similar gains are anticipated for Saskatchewan.

On the West Coast, rocketing real estate values, driven partly by foreign buyers, have eased off following a new provincial tax on these purchases, imposed in 2016. Still, B.C. is expected to remain a top performer, partly due to the weaker loonie. As well, rising demand in the U.S. should support the lumber industry, even though the 2006 Softwood Lumber Agreement with the U.S. is due to be renegotiated this year amid protectionist threats from U.S. President Donald Trump. Consumer spending also is expected to remain strong.

On the opposite coast, most of the three Maritime provinces are facing a lackluster outlook as a result of little public spending, aging populations and continued low prices for resources. However, modest economic growth is predicted for the region, supported by tourism, fishing and forestry exports to the U.S.

One small bright spot in the region is the growing attraction of P.E.I. for tourists, immigrants – and scientists. P.E.I. is forging ahead in the complex and potentially lucrative field of the biosciences. A housing mini-boom also is underway, which, in turn, benefits the financial services sector.

Two of the three Territories are likely to post positive GDP growth figures this year, bolstered by rising commodities prices and federal government spending on infrastructure.

Another plus for Nunavut: a state-of-the-art polar research station is set to open in Cambridge Bay this summer – and the project already has attracted 600 applicants for 40 positions.

For more about the economic outlook for Canada’s provinces and territories, see this year’s Report on the Nation on pages 14 to 20.

© 2017 Investment Executive. All rights reserved.