Ontario among provincial leaders in economic growth: Conference Board
Province's economy projected to grow by 2.9% in 2015, bolstered by strong exports and consumer spending.
“Ontario, with its minor exposure to the oil and gas extraction sector, is expected to receive a significant economic boost in the short term,” said Marie-Christine Bernard, associate director of the provincial forecast.
“Ontario’s economy is projected to grow by 2.9% this year, bolstered by strong exports and consumer spending – the first year since 2002 in which economic growth in Ontario outpaces the national average of 1.9%.”
Canada’s industrial heartland joins Manitoba and BC as economic growth leaders fuelled by the lower Canadian dollar, stronger US economy and stronger consumer confidence.
Meanwhile, a swift correction in oil prices will hurt other provinces like Alberta, Newfoundland and Labrador, and Saskatchewan.
Nationally, economic growth will be just 1.9% in 2015, down from 2.4% in 2014.
Consumer confidence is likely to increase as Ontario households could have up to $1,000 more in discretionary income in 2015, as a result of prices at the pump. While Ontarians will likely save some of it or pay down existing debt, much of it is expected to be spent on goods and services, providing a boost for real consumer spending in the province.
Ontario’s exporters will continue to benefit from increased demand from a healthy US economy, which is set to grow by 3.2% in 2015. The combination of low oil prices, the Bank of Canada’s recent interest rate cut, and a weaker Canadian dollar should render Ontario’s products more competitive, boosting exports to south of the border.
For most provinces, growing public debt and fiscal deficits will remain a challenge this year. Federal and provincial government revenues will feel the squeeze from reduced nominal GDP growth. Resource-dependent provinces like Alberta and Newfoundland and Labrador will also be forced to deal with substantially lower-than-expected resource royalty revenues. As governments work to control rising deficits, a new round of expenditure control is expected.
The sharp decline in capital expenditures in the oil industry will dampen the economic forecast for Alberta, Saskatchewan, and Newfoundland and Labrador.
“The slowdown in Alberta’s energy sector will have far reaching consequences as many of the workers who flew in and out of the province for oil and construction work may now be unemployed,” added Bernard. “It is estimated that $374 million in income was generated in Atlantic Canada from commuting workers.”
With the exception of Newfoundland and Labrador, the economic outlook is improving for Atlantic Canada. After some difficult times in the resource and manufacturing sectors, Nova Scotia and New Brunswick are expected to finally see more solid economic growth.
The downturn in oil producing provinces is expected to be relatively short lived as prices are expected to rise gradually as the global oil glut eases and global demand improves later this year and in 2016.
The outlook expects the collapse in oil prices to send Alberta’s economy into a tailspin, with real gross domestic product (GDP) forecast to contract 1.5% this year.
“The party appears to be over in Alberta, at least over the medium term, as low oil prices send chills through the economy. Several oil-industry firms have already announced sharp reductions to their capital plans and to employment,” said Bernard.
“In the next couple of years, a return to 4%-plus growth is not in the cards, since oil prices will not hit triple-digits any time soon under current market conditions.”
Planned reductions to oil-patch investments are already having immediate impact – the oil drilling rig count is down by 40% in the first week of February. Job losses resulting from lower oil sector investment will weaken the housing market, the overall consumer sector and the flow of new arrivals to Alberta.
Government revenues, from labour and corporate income taxes and resource royalties, will be severely at risk this year. Over the past ten years, the provincial government has derived, on average, 29% of its revenues from the resource sector, notably oil and gas royalties. The government has announced a 9% reduction to programs spending for the upcoming fiscal year. Infrastructure programs announced in the 2014 budget are also at risk.
One bright spot for Alberta producers is strong demand for heavy oil in US Gulf Coast refineries. Thanks to past investment, the energy sector has available capacity and it is able to increase non-conventional production.
Oil prices are expected to gradually rise as the global supply glut eases and worldwide demand improves. Prospects in the oil industry, both for capital expenditures and jobs, should gradually improve later this year and in 2016. The Alberta economy is expected to grow by a moderate 1.2% next year.