Very few provinces will be exempt from the “growth-dampening effects” of high interest rates, lofty inflation, and global economic uncertainty, says a new study from Desjardins.
The study, authored by principal economists Marc Desormeaux and Hélène Bégin, examines a range of factors working for and against the economic recovery of each Canadian province in the year ahead. It states that, as the housing correction moves into its next phase, Ontario, BC, and the Maritime provinces will be “particularly exposed” to secondary effects. As such, these regions are expected to post slower growth in 2023.
“Still, Ontario carries momentum into 2023,” write Desjardins economists, pointing to the province's “stronger-than-anticipated” real GDP in Q3 2022, which was attributed to non-residential business investment and exports.
For BC, economists paint a more dismal picture, calling the province “Canada’s most housing-exposed.” As such, economic weakness is expected to emerge increasingly throughout 2023.
Conversely, regions reliant on commodity production, such as Alberta, Saskatchewan, and Newfoundland and Labrador, stand the best chances of swift recovery in 2023. This is in spite of commodity prices softening on par with the weaker global economy, which will surely dampen industry profitability and economic activity, but won’t negate it completely.
Interprovincial migration will also bode well for Alberta’s economy in 2023, says Desjardins. The Canadian financial institution forecasts a similar trend with respect to international migration. “It’s also possible that with the latest national admission target increase, more newcomers will settle in the Prairies, where affordability and economic prospects are better."
Despite no shortage of market pessimism, Desjardins reports that recent fiscal updates have "almost unequivocally" projected better-than-anticipated bottom lines. "This leaves many provinces with more room to offer support in the event of an economic downturn while also staying true to long-run fiscal sustainability objectives."
Still, economists caution, much uncertainty remains.
“We still have not seen the effects of inflation on the expenditure side of the ledger, notably in higher public sector wages," the study reads. "Some governments’ finances are likely to be very sensitive to commodity price movements. And after some delays and reprofiling, there are questions as to whether shovel-ready infrastructure projects could be ramped up quickly enough. Acute labour shortages and input product scarcity remain.”