• The 2023 provincial growth outlook suffered a blow when the National Accounts revealed a disappointing (though mild) contraction in Q2 Canadian GDP.  With the national bar set lower, we’ve downgraded estimated growth performances across most regions.  Looking further out, with no provinces immune to the growing impact of this year’s rate hikes, we expect growth to broadly remain muted in 2024.     
• Widespread wildfires and other climate events have introduced distortions into recent economic data. Not all of the Q2 contraction is attributed to these events, but activity in key sectors namely oil production, mining, forestry, and agriculture suffered temporary setbacks. We expect a swift rebound in the near term across these affected industries with no substantial effects on national level growth this year.
• Housing market performances since the Bank of Canada resumed their rate hiking campaign have been as we had anticipated, with Ontario and B.C. on the weaker end and the Prairies on the other. Over the next couple of quarters, we see this pattern being maintained as the impact of high borrowing costs faces off against ongoing strong population growth.  Next year, rate relief should support widespread gains in home sales and prices.
• More specifically, we assume population growth in most parts of the country will continue at a brisk, albeit slowing pace. The impulse from higher population counts will help to mitigate the risk of recession across the country even as provincial unemployment rates remain on the rise.  Alberta and the Atlantic provinces stand to benefit more from durable migrant inflows as relative affordability remains an attractive selling point. 
• After a blowout third quarter, U.S. economic growth is poised to slow markedly through 2024, imparting an export drag across all provinces. Meanwhile, soft Chinese growth prospects could weigh on shipments, particularly in B.C., Saskatchewan, Manitoba and Nova Scotia. 
• Commodities markets, notably crude oil, are staging a mid-year rebound. Risks to the outlook appear balanced, as China’s fading momentum is squaring off with resilient global demand. Most commodity prices are still expected to remain elevated, providing a solid floor for activity in commodity producing provinces.  

For more details on our national forecast see our Quarterly Economic Forecast

British Columbia

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• PEI
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• Forecast Table

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British Columbia (B.C.) has faced more than its fair share of idiosyncratic shocks this year, including a disruptive port worker strike in July and devastating wildfires this summer. Despite these events, B.C. is the only provincial economy to avoid a mark down to its 2023 growth forecast, owing largely to a surprising bounce in housing activity earlier this year and ongoing resilience in consumer spending. Still, after expanding at a nation-matching 1.2% this year, we expect B.C.’s economy to endure a more pronounced downswing in 2024.

Revived momentum in housing activity in the first half of 2023 can be attributed to the Bank of Canada’s earlier decision to pause interest rate hikes. Housing resale volumes in the second quarter handily outpaced all provinces, rising over 30% q/q, even as listings pulled up to pre-pandemic levels. Since the summer, however, interest rates have renewed their upward track. With affordability remaining a real pressure point, we expect housing activity to continue to cool into 2024 before regaining a modest footing in the second half of next year.  

After starting the year on a cautious note, consumers in the province have been showing their mettle.  Nominal retail spending bounced back in a meaningful way in the second quarter after slipping 4% annualized in the prior quarter (Chart 1). What’s more, internal TD spending data points to decent household spending strength extending into the July-August period. However, with the province’s households facing the highest average debt burdens in the country and a growing squeeze from elevated interest rates, it is only a matter of time before the latest spending spurt runs out of gas.

More pronounced slowing has been seen in the labour market. Job growth in the Jan.–Aug. period slowed to a more pedestrian 1.3% y/y, below the national pace (Chart 2).  In coming quarters, we’re expecting a further flattening in employment gains to collide with relatively brisk labour force growth, pulling up the province’s unemployment rate to a peak level of around 6.4% next year. 

In the near term, B.C.’s trade sector will benefit from the end of the port workers strike and efforts to work through backlogs.  Further out, exporters will face a double-whammy of both a slowing U.S. economy and the ongoing struggles in China. Among the provinces, 15% of B.C. exports are destined for China, well above the sub-5% share of Canada as a whole.   

Alberta

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• SK
• MB
• ON
• QC
• NB
• NS
• PEI
• NL
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Alberta’s economy still holds the top spot on the provincial GDP growth chart in 2023. This comes even as the impacts of severe wildfires and shutdowns for general maintenance temporarily stunted activity in the oil sector earlier this year. Oil output dropped 15% in the second quarter, hitting its lowest level since mid-2016, when producers were recovering from the Fort McMurray wildfires (Chart 1). Looking ahead, a swift bounce back in production this autumn will set the stage for growth in oil output in 2024. That said, the recently announced delay of around 6 months in the start-up of the Trans Mountain Pipeline could push some of that upward momentum into 2025. 

The crude oil rally over the past few months has been supportive for Alberta’s public finances. In its latest quarterly fiscal update, the Alberta government trimmed its FY 2023-24 estimate for WTI to US$75/bbl, but we believe oil prices will overshoot that level by US$5, equivalent to a windfall of $3.1 billion based on budget sensitivities. Moreover, Alberta’s benchmark WCS price spread to WTI is holding a $15/bbl average for the year, in line with the Province’s own projection. The fiscal update also shows Alberta on track to record a $2.4-billion surplus this year, a modest increase from the surplus forecasted in February.

Any negative impact on real GDP from lost oil production this year is being made up from robust population and job creation, which in turn is supporting consumer demand.  At last count (Q1-23), Alberta posted the second fastest total net migration among the provinces (+52,000), with 30 percent of that count attributed to interprovincial migrants (Chart 2).  What’s more, these gains appear to have some staying power, as migrants continue to flock to Wild Rose Country to take advantage of relatively affordable housing and still-decent economic prospects. 

Alberta only trails PEI in year-to-date employment growth. With gains in the labour force managing to keep up, the unemployment rate has moved essentially sideways so far in 2023. However, a slippage in the number of job vacancies in Alberta in recent months suggests that labour demand has peaked, auguring for some cooldown in hiring and spending in the months ahead. Given their relatively high average debt levels, Albertan’s were likely disproportionally hit by the additional 50 bps of tightening delivered by the Bank of Canada (BoC) in June and July.     

Saskatchewan

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Weaker-than-expected production estimates for key crops and potash are the main culprits driving a 1.1 percentage point markdown to Saskatchewan’s 2023 GDP growth. This downgrade is the largest amongst provinces and brings this year’s GDP estimate to 1.3%, roughly in line with the national average. An underperforming labour market is also adding fuel to the fire, as tepid employment growth this year has translated to relatively weak consumer spending. That said, we expect activity to bounce back in 2024, pushing up Saskatchewan to the top of the provincial growth charts.

Seeding for staple crops earlier this year had gone according to plan. However, unfavourable growing conditions could see Saskatchewan’s principal crop production fall by around 20% according to Statistics Canada’s model-based field crop estimates.  Outside of 2020, when yields slid roughly -40% on the back of drought and potash shortages, this year’s projected pull-back would mark the largest since 2014 (Chart 1). This will have outsized effects on GDP as the agricultural sector accounts for roughly 8% of the province’s output compared to 2% for the nation as a whole. 

Potash production was slated to increase this year, albeit at a slower clip relative to last, as persistent geopolitical tension stoked global demand for product.  However, production is now on track to take a slight step back as key producers curtailed output in response to the Vancouver port strikes. While still at healthy levels, potash prices have come under pressure since peaking in the spring of 2022.  On a positive note, BHP has announced that it will accelerate the Jansen project spending this year. Construction outlays are planned to rise by almost $500 million as crews work to start the mine in late 2026 instead of in 2027 as earlier planned. 

As one of Canada’s major commodity producers, Saskatchewan stands to benefit from the tailwinds of durable and still-elevated commodity prices.  WTI crude prices are expected to hold in the healthy $75-$85 range over the next few years, supported by OPEC production discipline.  Unlike Alberta and Newfoundland, oil production is projected to advance this year. Elsewhere, uranium prices have recently notched 12-year highs which will support output at the Cigar Lake mine and Key Lake. Abundant critical mineral resource deposits, backed by a strong regulatory environment and competitive royalty and investment incentives, will continue to attract mining investment to the province (Chart 2). Lastly, housing affordability is good relative to other jurisdictions which should support demand in the near-term.

Manitoba

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• PEI
• NL
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We look for Manitoba to turn in a modest middle-of-the-pack growth performance this year. Manitoba’s outsized public sector has continued to flex its spending muscle, with employment in the sector up 2% so far this year. That said, we expect the contribution from this area to ease going forward, in line with provincial spending plans as the government aims to slowly chip away at a deficit estimated at around 0.2% of GDP. Manitoba’s economy also seems to have avoided some of the worst impacts from weather events which have plagued other provinces.

Manitoba’s manufacturing sector is enjoying a solid year, but much of this strength can be chalked up to a huge gain in transportation equipment, as global supply chains have improved (Chart 1). Moving forward, growth is set to cool partly on the back of weaker U.S. activity. Interprovincial trade prospects should also dim as growth slows from coast-to-coast, most notably in Ontario, which is Manitoba’s largest provincial export destination. The B.C. port strikes delayed shipments of grains and other items, but the impact was likely small and only temporary.

Manitoba’s relatively highly indebted households are set to feel an increasing burden from elevated borrowing costs, which will slow consumption in the province. Indeed, TD’s internal credit and debit card data suggests that some cooling is already taking place. That said, the province rolled out significant tax reductions in its budget (ahead of this October’s election), which should support household incomes. In addition, housing market activity remains resilient in the face of BoC rate hikes, with sales climbing by double-digits since May (Chart 2). Manitoba’s housing market didn’t see the same price increase as in other parts of the country during the pandemic, which has limited the erosion in affordability. In turn, relatively strong home price growth is projected to persist over the forecast horizon. 

We see construction subtracting from Manitoba’s growth in 2023 and 2024. Higher interest rates have slowed residential building so far this year, offsetting a pickup in non-residential building activity, and we expect further reductions into 2024. Meanwhile, the provincial government’s capital spending plan points to significantly reduced expenditures starting in FY 2024/25. In the agricultural sector, production data also points to lower output this year. Notably, prices for key crops like canola and wheat remain above pre-pandemic levels, although the latter has fallen, even amid concerns about Ukrainian supply.

Ontario

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• SK
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• PEI
• NL
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After a strong start to the year, Ontario’s economic growth likely cooled markedly in the second quarter. Still, we think that Ontario was able to modestly outperform Canada overall over the April-June period, supported by a rejuvenation in housing market activity as well as relative strength in job growth and exports. 

Household incomes and spending have been padded in the near-term by government support payments. We also see consumption being boosted by rising auto sales as pent-up demand is satiated. Even with these tailwinds, the resilience of household spending is being tested by rising debt servicing charges. Ontario’s households are highly indebted (Chart 1), meaning that they’ll have to dedicate an increasingly large share of their incomes towards debt servicing as we move through next year. With Ontario’s households so vulnerable, we foresee weak consumer spending moving forward, which should keep the province’s growth prospects relatively muted. 

A downshift in manufacturing exports is also likely to weigh on growth going forward. Weaker external demand should slow activity. We also foresee lower auto assemblies in Ontario next year, as output is taken offline at a few key plants in order to retool for electric vehicle (EV) production. That said, automotive parts manufacturing should manage to gain some ground in 2023 and 2024, with this year’s turnout benefitting from a continental-wide pickup in auto output and next year from the startup of the Windsor EV battery plant. However, strikes in the U.S. against the “Detroit 3” automakers pose a major downside risk to Ontario’s highly integrated auto industry, should they persist for more than a few weeks. In Canada, negotiations between workers and the automakers are ongoing.   

A surge of immigrants and non-permanent residents continues to fuel multi-decade highs in Ontario’s population growth. Even with this robust expansion, Ontario’s home sales have dropped the most of any province since the Bank of Canada resumed hiking rates in early June, falling by 14% (Chart 2). Moving forward, we see average home prices turning in a flattish performance in the third quarter, before declining in the final months of the year. Next year should bring better fortunes for home sales and prices as interest rates drop, although the worst affordability backdrop in at least 35 years should restrain growth.  

Québec

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• SK
• MB
• ON
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• NS
• PEI
• NL
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Quebec’s economy suffered a significant setback in the second quarter, as GDP likely declined further than the small dip observed nation-wide (Chart 1). Part of this weakness can be traced to the mining sector, where production was curtailed in the wake of severe wildfires. Accordingly, a near-term snapback in activity is anticipated in this sector. Meanwhile, fiscal support payments are boosting household incomes and consumption, supporting our expectation of a positive, yet modest, third quarter GDP print.

Quebec’s economy has shifted into a much softer growth trajectory since the second half of last year. Homebuilding has been a large drag on growth over this time, with the industry pulling back after a period of very robust activity, despite moderate population growth. The weakness in residential construction has likely spilled over into the manufacturing sector, which has been the other major anchor on growth since the second half of 2022. This is evidenced by declining shipments of wood, mineral and metal products (which are used extensively by the construction industry). 

The backdrop will likely remain challenging for these two sectors (which together represent about 15% of GDP) through next year, as a softer external demand weighs on shipments of manufactured items, while high borrowing costs and past declines in home sales continue to restrain residential building. Elsewhere, larger industries within Quebec include the public sector - where we see output growth slowing in line with provincial program spending plans - and the finance, insurance, and real estate industry. This latter sector should see improved fortunes next year (after a modest performance in 2023) as Bank of Canada rate cuts eventually boost home sales in the province. 

The one-two punch of higher borrowing costs and cooling job markets should conspire to slow household spending going forward. Quebec’s unemployment rate is the lowest in the country, but we see it climbing 1.6 ppts by the end of next year in response to weak economic growth (Chart 2), thereby loosening job markets and cooling wage gains. Household savings pools have also dwindled, as Quebecers dipped into their nest eggs to finance surging consumption through most of 2022 and the early part of this year. As already noted, Quebec is not seeing the same level of support to consumption from population growth as other parts of Canada. And this is unlikely to change over the next several years.

New Brunswick

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• MB
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• PEI
• NL
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After lagging national level growth by almost two percentage points last year, we expect New Brunswick’s (NB) economy to register middle-of-the-pack performances in both 2023 and 2024.  Relative to most other regions, we see less downside to NB growth on the horizon largely reflecting an outlook for continued record-setting population gains and resilient consumer spending. With households sporting the lowest average debt-to-GDP ratio versus provincial peers, consumers will be better shielded against sharply higher borrowing costs. At the same time, however, the external backdrop is expected to pose headwinds.

Population gains have been helping to sustain strength in both employment and the labour force, which are running at near national highs year-to-date (Chart 1). The swelling headcount last year had done its part in alleviating labour shortages, but vacancies have seen a resurgence in recent months. In fact, as shown in Chart 2, New Brunswick’s job vacancy rate recently pulled ahead of the national count after trailing throughout much of the pandemic. Of all major Census Metropolitan Areas (CMA) across Canada, Moncton’s population growth of 5.4% is the fastest rate since 2009. Against this backdrop, we still see room for above-average employment gains for the remainder of the year before labour markets come back into balance next year. 

The external backdrop has taken some wind out of the economy’s sails as nominal exports this year are down over  10%. Over 90% of the province’s international exports are shipped south of the border, where the economy is expected to decelerate into 2024. Irving Oil Ltd., the operator of Canada’s largest crude oil refinery in NB, is currently under strategic review, which has likely impacted oil shipments since June. Interprovincial shipments – which account for over half of total exports – are also expected to soften as Canadian domestic activity slows. Manufacturing activity is also lagging all other provinces, down 13% on the year.

The New Brunswick government’s fiscal backdrop continues to be healthy. In its first quarter fiscal update, the government revealed a projected surplus of $200 million for FY 2023-24, well above the $40 million estimate outlined in February’s Budget. Combined with a net debt profile that ranks the lowest among provinces east of Saskatchewan, the government is well positioned to support growth into next year’s cyclical slowdown.     

Nova Scotia

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• NB
• PEI
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