Provincial economic outlook: Alberta and Saskatchewan to top growth leaderboard

Derek, it's great to have you with us. I understand that you recently downgraded... Downgraded your 2022 forecast for some, but not all provinces. So I was wondering if you could just take us through each province and tell us what you're seeing and if it's okay, we'll start from west to east. So how's B.C. looking? 

Well, B.C. has done great, Kim. It's really been on quite a run. Last year we just had some numbers in for 2021: 6% growth that was second strongest in the country. So I thought the momentum would fade a bit last year, just given that unemployment has been so low, it didn't seem like a lot of upside to growth, but yet it bettered our expectations. That is continued into the first half of this year. Employment growth up 3% year over year, strong performance. You know, and I see some of these tailwinds continuing. I look at nonresidential construction on LNG, the Kitimat project, some of the government's infrastructure spend. That's going to create a lot of tailwinds just partly through a multiplier effect on on the economy. That said, comes back to housing. And one of the areas of our Canadian forecast we downgraded the most was the housing outlook due to the higher rates. We still have another almost two percentage points in short term rate increases to go. That's going to hit B.C. among the hardest in Canada, partly because it did so well. So the part of the story is economies and housing markets that did better due in part to the golden goose of housing. We'll see a bigger downturn and we're already seeing it show up in the numbers that we've seen as a fairly quick drop in sales. I think when this is all said and done, we'll probably see about a 33% decline in home sales from the high point earlier this year through to the end of next year. And prices to go down, you know, maybe 15 or 20%. That's average prices. I know it sounds like a lot, but they had about a 50% run up during the boom. So might be a bit of a recalibration. 

Yeah. I mean, 15 to 20 does sound like a lot. But you're right, it's only giving back, you know, just a bit from where it actually came out from. Let's talk about Alberta. If people have been reading the headlines, they're talking about surpluses in their provincial budgets for the first time. So what does that, what does that tell you about the economy? 

Well, the economy I mean, it had been really struggling, really, since the oil shock of 15, 16. It's been a little bit uneven since then. Last year was really the first year that everything came together. Reopening impacts. Oil and gas prices began to gain legs. And this year I see things really culminating really the higher oil prices. And we've upgraded our oil price forecast quite a bit and still see some near-term legs on oil prices. It creates a real income benefit for the province, not that it's going to translate as it has historically in a lot of real production, oil and gas drilling activity, because we know their constraints on that pipeline shortages and the like, but that income benefit is really important and it will cascade through household income, through government income, as you mentioned, the surplus that... The $3 billion surplus they just reported. So I see continued momentum in the near term. You know, the one when we go out to next year, oil will be lower. I think there will be demand destruction. It's just hard for economies to boom these days. I know I often get the question, is Alberta poised for a multi-year run? And it's just with higher rates and global economy slowing. You won't see that. But they will remain well above the national average, close to 3% in 2023 after about a five and a half per cent performance this year. 

It's a tough one. Yeah. When you have oil prices, you just don't get that same lift that we used to get. What about other commodities? I mean, we see the lift in oil, but also lift and I know food prices and such. So Saskatchewan, Manitoba, how is that looking? 

You know, they, too, are looking good. The difference with Alberta is that, you know, those economies didn't perform all that well last year. Bit more tilt, particularly Saskatchewan to agriculture. We had a 40% drop in crop production in 2021. So just a disastrous year, really hit Saskatchewan, Manitoba to a lesser extent. So we didn't see much growth at all out of those two economies this year. We're expecting bigger things, big bounce back. Really, though, like anything I can tell you, the crop prices are great. But, you know, seeding intentions weren't as high up as I thought they'd be. There's constraints on farmers, the higher cost of fertilizer. So again, similar to  Alberta, we may not get the real rebound in real activity that we might otherwise, but we'll still get better growth. And you know for Saskatchewan you got the potash demand that will benefit its economy and housing. They're not as vulnerable to a housing market correction in part due to affordability being better. So we don't have that big drag that we do see in some other provinces. 

Well, speaking of housing, I think in your latest note, you say Ontario is the poster child for Canada's ongoing housing market correction more than B.C.. 

They're close. You know, you'd have to flip a coin. I think when I look at the impacts, a little bit more outsized decline in sales in Ontario, bit more outsized decline in prices, not dramatic. I think those two economies on the housing front are facing significant parallels. But housing, yeah, I mean, it's really delivered a lot of benefits to Ontario's economy. You pull that away and we're not going to see the growth. That said, there's been a good cushion there. The first half performance in Ontario was really strong and really it's kind of took Canada on its back, so the momentum continued. Now we're going to get a very divisive, decisive turning point into the second half of this year. You think about housing. You think, okay, it benefits a lot of services in Ontario, of course, home to a lot of the financial services, head offices, professional services. You will get more of a rippling effect. More broadly now, I don't expect a recession in Ontario, but certainly the growth is going to get a bit skinny and particularly through 2023 as rates continue to go up and curtail that housing activity and commercial real estate to a lesser extent. 

Derrick I've only got about 30 seconds. I feel like I'm shortchanging Quebec and Atlantic. Next time I'm going to go east to West. But how is Quebec and Atlantic looking? 

Quebec's very similar story Ontario, albeit it's done even better than Ontario in terms of growth the last year. It's also going to see a slowdown. One of the areas it gets hit is immigration. And same with, you know, the Atlantic Provinces indicators to watch for tourism this summer. And we'll see how much spending happens. That may be a one and done given the high costs of tourism for many tourists, but that'll be a key indicator as well as immigration in Atlantic, but overall, they should continue to grow, but a lot slower. Newfoundland, by the way, should see acceleration because it's not done very well and it's got room to grow. And as oil production picks up a bit, I think it'll see a payback there. 

Interesting stuff. Derek, always a pleasure. Thanks so much. 

Thanks, Kim. Appreciate it.