Slower growth, power shift to the West

Canadians are becoming more pessimistic about the economy and gains in living standards will slow as economic power shifts from east to west in the next decade.

OTTAWA: Canadians are becoming increasingly pessimistic about the economy and gains in living standards will slow as economic power increasingly shifts from east to west in the next decade, two bank reports said.

An analysis by TD Bank also projects the resource-rich western provinces will grow faster than the national average over the next 10 years while Quebec and Atlantic Canada will expand much more slowly,

The TD projection, which looks at the years 2016-2021, is an attempt to paint a picture of Canada as it will appear in about a decade, once the after-effects of the recent recession have dissipated.

Pushing forward current trends, TD economists said they see the gravitation of economic power to Alberta and Saskatchewan continuing and picking up steam, along with the pull in migration as immigrants and Canadians are lured West by the availability of jobs.

This will have the effect of reversing what has been a gradual “convergence” of standards of living between have not and have regions.

“In Canada, we have seen evidence of economic convergence, but in recent years it has stalled and we may even see some of the progress reversed in the next decade,” said Derek Burleton, deputy chief economist with TD and a co-author of the report.

That will have implications for income disparities, government revenues, and spending pressures on social services, he said.

In another report, a Royal Bank study concluded that fewer than a third of Canadians – about 32% – are positive about the short-term outlook for the economy.

That’s down 11% from January 2011 and nearly half the number – 56% – who said so in January 2010.

While Canadians are paying down their debts, worries about the weakening economy and rising unemployment are weighing on Canadians’ minds, Canada’s biggest bank noted.

“We’re becoming more concerned about employment prospects in Canada,” said Craig Wright, the Royal’s chief economist.

“We’ve now seen 2011’s year-end weakness spill over into the beginning of this year. This, combined with the current unsettled environment due to ongoing concerns about the US and European economies, leaves us cautious about the outlook for 2012.”

In its report, TD projects oil-rich Alberta will lead average growth at 2.5% in the 2016-2021 period, followed by Saskatchewan at 2.3%.

Meanwhile, Quebec averages a point lower at 1.4% and the three bigger Atlantic provinces do even worse at 1.1% and 1.2%. Ontario and BC are one tick higher than the national average at 2.1%.

In recent years, Ontario has drifted from a have province to have-not status as the manufacturing base shrinks. Statistics Canada calculated 44,000 factory jobs had been lost in the past 12 months in Canada’s most populous province.

The provincial jobless rate has shot up to 8.1%, well above the national average.

Still, TD economists see Ontario’s economy outperforming the national average slightly due to continued influx of immigrants, which will increase the labour force.
Overall, however, the economy’s “cruising speed” is likely to average six-tenths of a point slower in the period than prior to the recession, when the economy expanded by 2.6% annually between 1990 and 2007.

That is a big difference, the economists say, because the gap compounds over time.
And it will have an impact in the way Canadians live. Canadians have seen their living standards rise by 1.6% during the two decades prior to the recession, but will likely realize gains of only 1.2% in the period studied.

A key reason for the deepening divide between East and West is population flows, or more properly the size of the labour force.

Based on current trends, confirmed in this week’s census report from Statistics Canada, population growth will only slow slightly from the one per cent annual average of the past two decades.

But it has a decidedly western tilt. Alberta’s population will grow by 1.4% annually between 2016-2021, followed by 1.2% for BC and 1% for Saskatchewan.

But contrast, the four Maritime provinces will experience virtually no population growth, and Newfoundland’s is projected to decline slightly. Quebec does little better at 0.5% annual gain, while Ontario is at the national average of 0.9% annual increase.

“The expected outflow of individuals to other parts of the country, combined with struggles to attract international migrants, weigh down the labour supply prospects for Quebec and the Atlantic provinces,” the report states.

Burleton said low labour growth may pressure industries to increase productivity, hence increase per-capita growth and living standards, but it could also strangle economic growth.

© 2012 The Canadian Press