Oil-rich provinces lead growth

OTTAWA — Natural resource riches are re-emerging as the major engine of economic activity in Canada, splitting the country between the oil-rich provinces and everyone else, a new report suggests.

OTTAWA — Natural resource riches are re-emerging as the major engine of economic activity in Canada, splitting the country between the oil-rich provinces and everyone else, a new report suggests.

The Bank of Montreal says the provinces of Alberta and Saskatchewan will beat the national rate of growth both this year and next by a wide margin, while other provinces’ growth won’t fare as well over the two-year period.

Newfoundland and Labrador, whose offshore oil production has begun to moderate, is expected to show strong growth again this year after leading the country in 2010, but then see growth drop off dramatically next year.

Ontario, Quebec and the three Maritime provinces, meanwhile, will likely struggle with growth below the national growth rate of 2.3 per cent this year and 2.0 next year as their economies are weighed down by government austerity and export challenges due to the high dollar.

BMO economist Robert Kavcic said the recent recession caused a “hiccup” in the West’s ascendancy as an economic powerhouse because commodity prices tumbled and demand softened. But the previous trend has reasserted itself.

“We’re getting back to what we saw in the middle part of the 2000s, which is that provinces with commodity resources significantly outperform provinces that just don’t have them,” Kavcic said.

The lure of resource wealth is a self-enforcing mechanism, he adds. High commodity prices boosts the value of the dollar, which further depresses provinces that depend on manufactured exports, such as Ontario and Quebec.

As well, resource rich provinces create a healthy tax base for governments, while others are forced to impose austerity to bring down high deficits, further dampening economic activity.

“It’s all related. What you see at times likes this is the population move from east to west, and it’s starting again. The first half of this year we’ve seen the highest rate of in-migration to Alberta since 2006 or 2007,” Kavcic said.

The BMO report coincides with a recent Conference Board outlook that also predicted Alberta and Saskatchewan would lead the rest of Canada in growth over the next few years.

On average, Canada’s economy is expected to continue with moderate growth in 2012 — not strong but not a disaster given the weak U.S. economy, Europe’s debt crisis and the slowdown in emerging markets.

BMO says Newfoundland’s growth will top the chart this year a 3.5 per cent but drop to 1.6 per cent growth in 2012.

Alberta’s growth this year is expected to roll in at 3.3 per cent, following by Saskatchewan at three per cent. Next year, the two provinces are expected to record gross domestic product gains of 2.8 per cent and 2.9 per cent respectively.

Meanwhile, Canada’s most populous province — Ontario — will record tepid growth of 2.1 this year and 1.9 per cent in 2012. Quebec’s pace of expansion will be even slower at 1.8 per cent and 1.7 per cent for this year and next, respectively.

New Brunswick’s economy is expected to grow 1.4 per cent this year and 1.5 per cent next year, Nova Scotia’s growth will be slightly higher both years at 1.6 per cent and 1.8 per cent, and P.E.I.’s will grow faster than its Maritime neighbours this year at 1.7 per cent but slower than them next year at 1.4 per cent.

British Columbia, which is emerging as an energy powerhouse due to its shale gas reserves in the province’s northeast region near Alberta, will be above the national average with 2.4 per cent growth in 2011 and 2.3 per cent in 2012.

Manitoba, which has a growing oil patch near its southern border with Saskatchewan, will have 2.0 per cent growth this year and 2.3 per cent in 2012.

The bank notes that despite this year’s temporary disruption due to wildfires, Alberta oil production increased by an annual 7.8 per cent through August, with bitumen production up 10.8 per cent.

Saskatchewan has the added benefit of potash, which was up a whopping 25 per cent annually through September this year.

The activity helped push the average unemployment rate in Saskatchewan down to country-best average of 4.9 per cent average so far this year, and weekly earnings up almost five per cent.