Canada’s surprise downside growth in the third quarter of 2023 saw the TD Economics Provincial Economic Forecast downgrade both its 2023 and 2024 national annual average forecasts.
The report traced the reason for the downturn to exports and consumption – both of which are predicted to have disproportionate effects on Quebec, Manitoba, BC, and Nova Scotia.
Despite these changes, however, relative growth rankings remain unchanged from TD’s previous forecasts – 2023 outperformances across the Prairies are still anticipated, while BC, Quebec, and Newfoundland and Labrador are still predicted to lag.
Provincial governments are in a worse financial position than previously considered, wrote the authors in pertinence to the recently released fiscal updates.
The “higher-than-expected” expenses have fueled an increase in the combined fiscal year 2023/24 deficit to roughly $9.7 billion (0.3% of GDP), which represents a $5 billion deterioration relative to budget estimates.
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Net debt-to-GDP positions are also upgraded; however, the outlook for falling borrowing rates will, according to the report, ease pressure on debt servicing costs.
The authors estimated little in the way of economic stimulus from the plans, which they said was helpful from an “inflation-fighting perspective.”
In terms of the housing market, Ontario and BC have witnessed the biggest deterioration in relation to other regions in Canada. Loose conditions should prompt price discounting in Ontario and BC, while modest gains are recorded elsewhere (on average).
The report also detailed labor force growth outpacing job creation and availability across most Canadian provinces in 2023.
BC and Ontario, for example, have seen the quickest year-on-year unemployment rate rises, while Alberta and Saskatchewan’s job markets are still tight.
After its preliminary overview of the various provinces, the report then proceeded to engage in a deep, province-specific dive on various metrics. These are detailed as follows:
British Columbia:
BC lost its real GDP forecast by 0.3% to 0.9%, causing the Western Canadian province to undershoot national performance for the first time in 10 years.
The slight economic performance by the province, moreover, is expected to continue for the following year.
BC’s economy has also suffered at the hands of the Bank of Canada (BoC), which hiked its interest rates earlier this year. Since July, for example, residential home sales have fallen by 25% – the biggest decline across all Canadian provinces.
Until at least mid-2024, there is little hope for a bounce-back in this metric.
The overall slowing of the provincial labor market has had consumers exert caution, and job growth from January to November slowed to 1.5%, which is “well below the national mace.”
However, the BC government’s finances were determined to have remained “relatively stable” by the TD economists, despite some slight fiscal deterioration.
Alberta:
Alberta was assessed by the report’s authors as continuing to remain insulated, but not immune, from broader macroeconomic “headwinds” facing Canada.
Its supportive commodities backdrop, durable population gains, and relative housing affordability were assessed by the authors of the report to be of benefit to it, but “the impulse from these tailwinds will start to fade into next year.”
Alberta has one of the largest growth rates of any province for both 2023 and 2024, with real GDP forecasts of 2.2% in the former year and 1.4% in the latter.
The industry in which the province is experiencing the most investment (outside of oil and gas) is non-residential building construction, despite higher borrowing costs.
The residential building construction is experiencing a similarly impressive increase.
Saskatchewan:
Saskatchewan was predicted by the report’s authors to be falling behind their early-year expectations, which would have had it topping the provincial leaderboard for a second straight year in 2023. Commodities such as wheat and potash have had a difficult time in the province, and – despite good job growth – the province has been lagging behind because of it.
While Saskatchewan is slightly above the national level of real GDP growth for 2023 (at 1.2%), it is dwarfed in comparison to the previous year’s pace of 6.0%.
Its GDP gains are to slightly exceed the national average in 2024 and 2025.
Manitoba:
Manitoba saw a nearly 2% gain this year, which the report described as “somewhat of a letdown, given the context of a tepid recovery from the pandemic” through 2022.
Agriculture is weighing on Manitoba’s economy this year, according to the authors, with production for crops like canola falling due to dry conditions.
Moreover, despite tax relief consumption growth is likely to soften over the following year, weighed down by elevated borrowing costs, especially as Manitoba households are carrying the fourth-highest debt load in Canada.
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Ontario:
Despite its highly indebted households and weak housing markets, Ontario’s economy has shown resilience so far in 2023. Real GDP growth was 1.5% year-on-year in the first half – just a little below trend.
However, even though there was a nation-wide contraction in GDP in Q3 – which should suggest weakness in Ontario – the province’s growth more likely outperformed the national overall, partly because of the rise in motor vehicle exports.
Quebec:
Quebec’s economy has been one of the weakest in the recent past, with real GDP contracting at a 2% annualized pace in the second quarter and looking likely to fall again in Q3 – barring a big growth surprise in September.
However, this is not recession, as the labor market has in fact generated 50k net new jobs over the same period.
Weakness has been obvious in construction, which reflects a pullback in the residential sector after “unsustainable” years in 2021 and parts of 2022.
The weakness in question has also seeped into manufacturing activity, with decline in those materials that are used a lot in construction.
Retail and services spending, on the other hand, have been impacted by higher interest rates.
Quebec consumption is also weak, despite household savings are strong, household debt is low, and wage growth is solid. This could be explained by the fall in disposable income compared to the end of last year as provincial government support has weakened.
The report forecasts a slightly better growth performance in 2024 compared to 2023, with growing prospects of the BoC pivoting and lowering interest rates by spring – a move that will likely support construction spending growth and the housing market (the latter of which is expected to boost the finance, insurance, and real estate sectors).
New Brunswick:
New Brunswick’s economic outlook was not changed compared to the report’s previous forecasts, with real GDP growth in the province set to outperform Canada as a whole next year.
With little household debt in the province, consumers have been able to avoid borrowing costs, and increase their inflation-adjusted retail spending.
Moreover, as most newcomers to the province are permanent residents, job market momentum should spill over into 2024
Nova Scotia:
Owing to a booming population growth which is underpinning household consumption gains, Nova Scotia’s economy was forecasted to have a roughly 1.5% increase this year, which is above the 10-year average.
Construction’s fertile market in the province, but the average price for a home is 70% higher than what it was before the pandemic. This has been a huge hit to sales.
Prince Edward Island:
Despite no longer having the fastest population growth in the country (having lost to Alberta), PEI’s population is still bound to swell “at record-breaking rates,” according to the TD report. The main reason behind this is immigration, but interprovincial migration has also played a role.
Moreover, PEI has been able to retain its immigrants, which will have benefits in the medium-term – especially economic. For example, labor markets are supplied better than in most parts of Canada, which fuels the fastest job growth in Canada.
Newfoundland and Labrador:
The economists at TD forecasted a second consecutive annual decline in the province’s real GDP for 2023, after NL struggled to gain momentum in 2022.
A highlight regarding the province’s economic future can be traced to its recent signing of an agreement with Ottawa which, if passed, would allow NL to solely regulate renewable energy developments on various Bays around the province.
This would pose a significant economic opportunity for NL and would support future investment for offshore wind development projects.