Canada Forecasts Stronger Growth in 2014
Interview conducted by Rachel Duran
Editor’s Note: This interview was conducted October 23, 2013. For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.
Of Canada’s Atlantic Provinces, Newfoundland and Labrador lead the pack in economic performance, while Prince Edward Island holds steady, and New Brunswick and Nova Scotia bring up the rear. There are a range of possibilities and difficulties in this region.
In regard to the Canadian economy overall, moving forward, as the U.S. economy performs better, there will be less spare capacity in the Canadian economy, which will put upward pressure on prices. Also next year, expect the Bank of Canada to raise interest rates. On the public sector front, government will continue its tight grip on expenses and hold back on stimulus funding.
Global Corporate Xpansion: Did the partial U.S. government shutdown in early October impact Canada?
Marie-Christine Bernard: I don’t think it did that much. If it had lasted longer, if it had disturbed financial markets worldwide a bit more, it would have impacted Canada. The debt ceiling was raised. There were ups and downs on certain days. We will have to see what is next.
GCX: What is the state of the Canadian economy?
Bernard: There has been very modest growth this year, the same as we saw in 2012. There is still a lot of weakness due to the fiscal situation, where the government is trying to balance the books within the next two fiscal years.
Job creation has been weak. This year we also saw a weakening in business investments. All categories have slowed down: residential, nonresidential, and machinery and equipment.
As we look to the future, our forecast shows stronger growth for the Canadian economy, backed by stronger consumer demand next year, as well as the recovery in exports, linked to stronger private sector growth in the U.S. economy. There are some fiscal problems to resolve, but nonetheless, the economy seems to be growing at a good pace, which will benefit exports out of Canada.
The increase in exports should impact central Canada, particularly Québec and Ontario, where three-quarters of their exports head to the United States. Most of the improvement will come from central Canada. In western Canada, Alberta, Manitoba and Saskatchewan are doing quite well, with the exception of British Columbia, where the economy has slowed down.
GCX: Which brings us to Atlantic Canada.
Bernard: The forecast hasn’t changed too much. Newfoundland and Labrador has a booming economy, with several large projects under development. An oil field, Hebron, northwest of the Terre Nova oil field project, is under development.
Just recently there was an announcement that another oil field, a satellite to one of the major projects, which is West White Rose, would be developed over the next few years. That will inject several billion dollars into the economy.
There is also a hydro project underway at Muskrat Falls, where there are also several billions of dollars being invested.
Behind Alberta and Saskatchewan, Newfoundland and Labrador is one of the fastest growing provinces. We see strong wage growth and consumer demand.
So this year, we expect the Newfoundland and Labrador economy to grow by 6.1 percent and by 1.8 percent in 2014.
The other three Atlantic Provinces [Nova Scotia, New Brunswick and Prince Edward Island] aren’t doing as well. Prince Edward Island has always had fairly steady economic growth; and it is a small province. It has been affected by problems in the fishing industry. There is a glut of lobsters as more catches are coming in from Maine. That is putting downward pressure on prices.
Overall the province is steady. The growth rate should be near 2.1 percent in 2013, and 1.3 percent in 2014.
GCX: What’s happening in Nova Scotia and New Brunswick?
Bernard: Nova Scotia and New Brunswick are probably the weakest provinces in Canada. In New Brunswick, there haven’t been any jobs added to the job market over the past three years. They will experience some gains in certain months, and then lose jobs in the following months.
New Brunswick has seen a lot of problems in the forestry sector and there are no major investment projects underway. The outlook is difficult for the construction industry, and things have also been difficult in the manufacturing sector, particularly in Moncton, where a plant closed and jobs were lost.
The New Brunswick economy declined by 0.5 percent in 2012, and a gain of 0.6 percent is expected in 2013. A gain of 1.6 percent is expected in 2014, which is based on a slightly better outcome for the economy, but also because of new potash production. The new potash mine should start producing in 2014, so that will raise real GDP growth but not necessarily create a lot of jobs.
Moving to Nova Scotia, the job market has been uneven. Consumer demand is weak. What’s more, construction projects are ending. Overall, Nova Scotia should grow by 1.2 percent in 2013, which is a gain of 0.2 percent over 2012.
There will be much stronger growth in 2014 of 2.8 percent. It is not that the economy is going to be doing that much better, however, real GDP will get a boost from new natural gas production. There has been investment over the last few years to develop the Deep Panuke natural gas field. Production just got underway.
In regard to future activity in Nova Scotia, the province is presently investing to prepare its shipyards to accommodate the surge in shipbuilding activity that will get underway in 2015. It is a long-term contract to build combat ships for the defense department.Investments of $300 million have been made to prepare the infrastructure in the last two or three years. The project will give a large boost to the economy.
GCX: What do companies need to understand when considering Canada as a location for expansion and/or relocation?
Bernard: We are not seeing a lot of inflation; it has been subdued. Going forward, as the U.S. economy performs better and the Canadian economy benefits, there will be less spare capacity in our economy, which will put upward pressure on prices. So eventually the loose monetary policy we have right now, such as low interest rates, will go up. The Bank of Canada will initiate increases in the interest rates so that inflation remains in the 1.5 percent to 2 percent range.
The loose monetary policy should last another six months to nine months, and we will see interest rate increases in Canada probably before we see them in the United States. The Canadian economy did perform better than the U.S. economy so Canada will absorb its spare capacity more rapidly. Another point is the federal government might take a few years to balance the books. It will take longer in certain provinces, such as Québec and Ontario, which haven’t been performing well, especially Québec.
Revenues have not increased as planned so there will still be a few years where the government will keep a tight grip on expenses and we will not see a lot of stimulus coming from the public sector in Canada for the next few years.
Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by e-mailing email@example.com. The Conference Board of Canada is the foremost independent, not-for-profit, applied research organization in Canada. Visit the organization at www.conferenceboard.ca.
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