Source: The Canadian Press

Canada’s recovery is starting to take on the “two-economies” aspect of the pre-recession years, where resource-rich regions prosper and central Canada struggles.

A new forecast from Bank of Nova Scotia shows Alberta, Saskatchewan as well as Newfoundland and Labrador — three provinces rich in oil, gas and other resources — will lead Canada in economic growth next year.

Meanwhile, Canada’s manufacturing heartland in Ontario and Quebec will lag behind with growth rates of 2.0 and 1.9% respectively.

Scotiabank economist Alex Koustas notes that the western provinces were hit hard during the 2008-09 recession, when global demand and prices for commodities, from oil to minerals to potash, fell.

But now that the global recovery has begun, those sectors are coming back strongly, while manufacturers are still facing headwinds from the high dollar and weak demand in the United States.

“We’re looking at manufacturing in central Canada not decreasing, but kind of staying pat where it is, whereas in western Canada we’ll see a lot more export growth through energy and minerals and also a lot more investment,” said Koustas.

The bank estimates Ontario will grow by about 2% next year, while Quebec advances by 1.9%, both below the 2.3 national average.

Scotiabank’s estimate for Canada overall is in line with the Bank of Canada’s official projection.

Ontario has bounced back relatively strongly from the recession and is expected to record a 3.5% advance this year, but the province’s longer-term prospect is weaker.

“The auto industry has led Ontario’s recovery with vehicle production surging by 50% in the year to October…however, the gains have started to moderate and will ease to a single-digit increase in 2011,” the report predicts.

Meanwhile, Alberta will lead the nation with a 3.5% economic expansion next year, followed by Saskatchewan at 3.3% and Newfoundland’s 3.1% — the only provinces above the 3% mark.

The economy divide is expected to be reflected in jobs growth as well, with Ontario unemployment seen hovering at 8.6% throughout 2011 and Quebec at about 8%.

Saskatchewan is forecast to continue leading the country with a low 5% jobless rate, followed by Manitoba, 5.1%, and Alberta’s 6%.

Unemployment in the Atlantic provinces will range from a high of 14% in Newfoundland to a low of 9.2% in Nova Scotia, near current rates, the paper estimates.

Koustas said far better job prospects in the West will likely result in a continuation of migration to the region from the rest of Canada.

A separate paper by the TD Bank predicts Canada’s economy will be underpinned by a hike in business investment in machinery and equipment in the next couple of years.

Business investment was a major weakness during the recession as firms hunkered down until conditions improved, but TD says purchases are expected to account for more than half of total real gross domestic product growth in 2011 and 2012. The modernization of plants is also expected to improve Canada’s woeful productivity performance, the paper says.