Provincial Economic Forecast

Interest Rates are Biting but Provinces are Fighting

Beata Caranci, Chief Economist | 416-982-8067

Derek Burleton, Deputy Chief Economist | 416-982-2514

Rishi Sondhi, Economist | 416-983-8806

Marc Ercolao, Economist

Date Published: December 19, 2023

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    Provincial Real GDP Growth Forecast (2023)
        BC: 0.9%
        AB: 2.2%
        SK: 1.2%
        MB: 1.6%
        ON: 1.1%
        QC: 0.3%
        NB: 1.1%
        NS: 1.4%
        PEI: 2.3%
        NL: -0.4%
  • The Q3 downside growth surprise has led us to downgrade both our 2023 and 2024 national annual average growth forecasts. Exports and consumption drove the downgrades and will likely disproportionately impact Quebec, Manitoba, B.C. and Nova Scotia. Even with these changes, relative growth rankings are mostly unchanged from our prior forecast. We still anticipate 2023 outperformances across the Prairies while, B.C., Quebec and Newfoundland & Labrador are set to lag.
  • Recently released fiscal updates reveal that provincial governments are in a worse financial position than previously thought. Higher-than-expected expenses have driven an increase in the combined FY 2023/24 deficit to about $9.7 billion (0.3% of GDP), representing a $5 billion deterioration relative to budget estimates. Net debt-to-GDP positions are also upgraded, although the outlook for falling borrowing rates will ease pressure on debt servicing costs. We estimate little in the way of economic stimulus from the plans, which is helpful from an inflation-fighting perspective.  
  • Housing market conditions have deteriorated more markedly in Ontario and B.C. relative to other regions.  Loose conditions should prompt price discounting in Ontario and B.C, while modest gains are recorded elsewhere (on average). Markets across Canada will receive a considerable shot in the arm next year from Bank of Canada rate cuts. Accordingly, prices should be growing across all markets in the second half of 2024.
  • Labour force growth has outpaced what would historically be considered solid job creation across most provinces in 2023. As labour market tightness continues to unwind, we see adjustments across provinces taking place at various speeds. B.C. and Ontario have seen unemployment rates rise quickest from last year’s troughs, while job markets are still tight in Alberta and Saskatchewan. Robust population growth will remain a theme heading into 2024.
  • Commodity-producing provinces are still in the best position to weather growth headwinds moving forward. The volatility in crude oil markets has also ratcheted up in recent months as markets try and reconcile complex supply-demand cross-currents. However, we still expect oil and most other commodity prices to remain above their-long-term averages, providing a solid floor for activity in commodity-oriented regions.  

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

British Columbia


 British Columbia Economic Forecasts

                      [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 0.9 0.3 1.8
Nominal GDP 2.3 3.1 4.0
Employment 1.5 0.7 0.6
Unemployment Rate (%) 5.1 6.1 6.1
Housing Starts (000's) 51.2 46.3 42.3
Existing Home Prices -1.4 -0.9 2.2
Home Sales -9.1 0.3 19.6

 

British Columbia’s (B.C.) 2023 real GDP forecast has been shaved by 0.3 percentage points (ppts) to 0.9%. This puts the province on track to undershoot national performance for the first time in 10 years. The ratcheting back in prospects largely reflects a sharper-than-expected softening in both the resale housing market and consumer spending since the mid-way point of this year.  We expect the slight underperformance in B.C.’s economy–both relative to the nation and its historical trend–to persist in 2024. 

The additional interest rates delivered by the Bank of Canada (BoC) earlier this year have had visible negative impacts on B.C.’s economy. Since July, residential home sales have slipped nearly 25%, the biggest decline across all provinces. Looking ahead, we see little scope for the resale market to gain traction until mid-2024, when lower borrowing rates should begin to rekindle activity. Existing home prices should see some softening until the mid-year mark before beginning their upward ascent.

A more pronounced slowing in B.C.’s labour market have had consumers moving forward with caution. Job growth in the Jan.–Nov. period slowed to a modest 1.5% y/y, well below the national pace (Chart 1) while retail spending adjusted for inflation is set for a decline of around 2–3% this year.  The spending pullback has helped inflation decelerate to a sub-3% range, which has mildly reduced pressure on household affordability.  Relative to incomes however, B.C. households remain the most indebted in the nation, which will continue to limit near-term growth prospects.

B.C.’s merchandise exports have trended downward on the back of weaker global demand and lower prices for key commodities. This has pushed export values to around 16% below the same period last year. B.C. ports, handling nearly 25% of trade, were impacted in July as prolonged port strikes halted the movement of key goods to external trading partners. The outlook for B.C.’s trade is mildly improved for next year and may get a marginal lift from the recently announced fiscal stimulus out of China (Chart 2).

On the bright side, B.C.’s government finances remain relatively stable. This is despite some slight fiscal deterioration reported in the mid-year fiscal update relative to Budget 2023. B.C. continues to sport one of the lowest debt burdens among the provincial governments, which provides some fiscal leeway in the event that economic storm clouds worsen.   

Chart 1 shows year-to-date (YTD) employment growth between the January–November period. B.C. lags all provinces at 1.4%. The highest employment growth across provinces is in PEI with employment growth at 4.9% YTD. The national average is currently 2.5% YTD.
    Chart 2 shows the year-on-year (y/y) change in B.C.'s merchandise exports to the U.S. and China since January 2022. As of September 2023, export growth to China is up 6.7% while export growth to the U.S. is down around 22%. Exports to the U.S. rose at the fastest pace in September 2022 (+40%), and +44% to China in February 2022.

Alberta


              Alberta Economic Forecasts 

                              [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 2.2 1.4 1.8
Nominal GDP -1.3 4.4 3.7
Employment 3.5 1.4 1.0
Unemployment Rate (%) 5.8 6.3 6.4
Housing Starts (000's) 34.4 33.3 31.4
Existing Home Prices 1.4 5.1 3.6
Home Sales -9.1 10.8 5.5

 

Alberta continues to be insulated, though not immune, to the broader macroeconomic headwinds facing the nation as a whole. The province will still benefit from a supportive commodities backdrop, durable population gains, and relative housing affordability, but the impulse from these tailwinds will start to fade into next year. With real GDP forecasted at 2.2% in 2023 and 1.4% in 2024, Alberta keeps its spot near the top of the provincial growth charts.

The impacts of wildfires and shutdowns for maintenance earlier this year temporarily stunted activity in Alberta’s oil sector. But the production rebound since July has been swift, as expected, (Chart 1) and positions the energy sector to advance at a modest pace this year. The stage is also set for a solid showing in 2024, especially as the Trans Mountain Pipeline is slated to be operational by the mid-way point of the year. The extension will nearly triple export capacity out of the region and unlock access  to new international markets.

The Alberta government kept its estimate for WTI at $79 /bbl for the year in its mid-year fiscal update, while forecasting a narrower spread for the WTI-WCS differential at $17 (previously $19.50). These projections are reasonable, even in the wake of oil price volatility that has seen prices dip to around the $70/bbl level in recent weeks. Non-renewable resource revenues continue to drive improvements in the budget balance and the outlook for prices to hold within the US$70-$80 range in the  near-term is still supportive of healthy public finances.

Outside of oil and gas, investment in non-residential building construction is gaining momentum despite higher borrowing costs. Similar momentum is taking place on the residential side, led by an impressive 35% increase in housing starts since April. Relatively tight resale markets will be instrumental in driving another year of outsized residential investment gains in 2024 (Chart 2).

Elevated population growth this year has added significant fuel to the province’s economic expansion. Alberta is likely to remain a magnet for many international and domestic newcomers in light of its relatively affordable housing market and prospects for continued economic outperformance. However, we still anticipate some moderation in domestic conditions as gains in the overall headcount and job creation slow from 2023’s unsustainable pace, while the highly indebted consumer-base will continue to feel the pinch from this year’s run-up in interest rates    

Chart 1 Shows Alberta's monthly oil production since January 2021. As of October, Alberta produced 18.7 million m3 of oil. Over the time sample, it reached it's lowest point in July at 14.8 million m3 as wildfires and general maintenance affected the industry. Average monthly oil production over this time was 17.7 million m3. Chart 2 shows real residential construction investment for Canada and Alberta since January 2021 and indexed to 2022. Alberta's current indexed value is at 97.5, after being as low as 80 in May 2023. Canada's current indexed value is at 81.5, up from 71.75 in July 2023.

Saskatchewan


         Saskatchewan Economic Forecasts 

                           [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 1.2 1.2 1.5
Nominal GDP -0.9 3.8 3.2
Employment 1.7 1.6 0.9
Unemployment Rate (%) 4.8 5.5 5.6
Housing Starts (000's) 4.5 4.3 4.6
Existing Home Prices 0.0 3.1 4.2
Home Sales -3.5 7.1 9.6

Saskatchewan’s economy appears to be falling short of our early-year expectations that had it topping the provincial leaderboard for the second straight year in 2023.  Key commodities, namely wheat and potash, have had a difficult stretch.  And while job growth has been solid, it has been lagging the nation.  At 1.2%, real GDP growth for 2023 is estimated to be still slightly above the national level, but it marks a hefty step back from the blistering 6.0% pace in the year prior.  For 2024 and 2025, Saskatchewan’s GDP gains are expected to slightly exceed the national average. 

Unfavourable growing conditions could see Saskatchewan’s principal crop production fall by around 10% this year according to Statistics Canada’s most recent estimates (Chart 1). While disappointing, this still marks an improvement from the expectation of a near 20% pullback in yields earlier in the growing season. A levelling out in Chinese growth next year should provide some support to agricultural export activity while less volatile weather conditions will hopefully aid a rebound in production.

Potash prices are down a substantial 50% since peaking in the spring of 2022. This didn’t bode well for overall potash sales, which are tracking a contraction this year. Other major global producers, namely Russia and Belarus, are also gobbling up market share as shipments to major consumers have picked up in recent months. On a positive note, BHP announced its plan to go ahead with its $6.4 billion in spending to build the second stage of its Jansen mine, bolstering the medium-term outlook for investment and jobs.

Elsewhere, uranium prices continue to notch record highs, underpinning output at the Cigar Lake and McArthur River mines.  Total uranium production is up a staggering 52% year-to-date (Chart 2) with further increases on tap in 2024. Oil sector prospects also remain relatively bright. WTI crude prices are expected to hold in the healthy $70-$85 range over the next few years, and oil production is projected to notch moderate gains over the medium-term. 

Although employment growth has lagged this year, Saskatchewan continues to boast the highest job vacancy rate and lowest unemployment rate across provinces. This suggest some degree of lingering tightness that will buoy employment gains into next year and support aggregate spending.  Given its commodity bent and relatively low household debt burden, Saskatchewan is less exposed to the ongoing impacts of elevated interest rates.

Chart 1 shows Saskatchewan's principal field crop production and agricultural GDP, both history and the 2023 forecast. Crop production and agriculture GDP in 2023 are expected to both decline by around 10%. The maximum and minimum crop production and GDP occurred in 2022 and 2021, respectively. Over the time horizon, crop production averages a 5% annual gain while GDP averages a 4% annual gain.
    Chart 2 shows year-to-date (YTD) production levels for Saskatchewan's key minerals. The data covers the January–October period. Uranium leads the way with YTD growth of 52%. Salt production is up a slime 0.5% YTD. Potash production is down 6.4% YTD while other minerals production is down 5.3%.

Manitoba


           Manitoba Economic Forecasts 

                          [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 1.6 1.0 1.4
Nominal GDP 3.5 4.0 3.2
Employment 2.5 1.4 0.8
Unemployment Rate (%) 4.9 5.5 5.4
Housing Starts (000's) 6.8 5.6 6.2
Existing Home Prices -2.4 5.0 3.4
Home Sales -10.1 6.0 9.3

 

The near 2% gain expected for Manitoba this year is somewhat of a letdown, given the context of a tepid recovery from the pandemic posted by the province through 2022. The agricultural sector is weighing on the overall economy this year, with declining production for key crops like canola amid dry conditions. Meanwhile, construction is being dragged down by higher rates and some normalization in the industrial sector after several years of record building related to large-scale food processing plants. On the flipside, government spending is offering a lift to growth, evidenced by hiring gains in public sector industries.

Our internal card data suggests that household spending growth in Manitoba has displayed some resilience so far this year – in line with Canadian trends – supported by job gains and solid immigration. Notably, employment rates for recent immigrants tend to be relatively high in Manitoba (Chart 1), helping the province maintain the highest newcomer retention rate outside of the “Big 4” provinces. Consumers are also benefitting from provincial tax relief and the recently elected NDP government has pledged more of the same, with the provincial fuel taxes set to be temporarily lifted starting in 2024. However, the promised freeze in hydroelectric rates may be delayed. The new government has also inherited a more challenging fiscal situation, with the FY 2023/24 deficit projection revised up to a hefty $1.6 billion (1.8% of GDP), and net debt-to-GDP elevated at 37.1%. 

Even with tax relief, consumption growth is likely to soften over the next year, weighed down by still-elevated borrowing costs, especially as households in Manitoba are carrying the fourth highest debt-load in the country (Chart 2).

Manufacturing shipments have registered a decent gain year-to-date, as improving global supply chains have boosted the transportation sector. That said, much of this increase took place early in the year, and momentum in this sector is waning. Unfortunately, the outlook is also dim thanks to a slowing U.S. expansion and cooling activity in other provinces. In terms of other goods industries, Manitoba is well positioned to benefit from climate change initiatives through its reserve of key minerals – such as cobalt – needed in electric vehicle production. Growing demand for cleaner energy also has the province pledging to vastly increase its generating capacity over the long-term. However, in 2023, hydroelectric output is down significantly since the spring, likely weighed down by droughts.

Chart 1 shows employment rates for immigrants who landed 5 years or earlier in Manitoba and Canada, averaged from 2016-2022. Over that time, the average employment rate was 65% in Canada and 70% in Manitoba.
    Chart 2 shows household debt-to-income ratios by province in 2023Q2. During that time B.C.'s ratio was 218%, ON's was 207%, Canada's was 188%, AB's was 178%, MB's was 173%, QC's was 159%, SK's was 155%, NL's was 143%, NS' was 129%, and NB's was 124%.S

Ontario


              Ontario Economic Forecasts

                               [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 1.1 0.3 1.5
Nominal GDP 3.8 3.2 3.5
Employment 2.5 0.3 1.1
Unemployment Rate (%) 5.6 6.9 6.9
Housing Starts (000's) 95.1 87.1 89.4
Existing Home Prices -5.7 -5.1 2.1
Home Sales -13.1 2.7 20.7

Even with highly indebted (and thus relatively rate sensitive) households and very weak housing markets, Ontario’s economy has shown an impressive degree of resilience so far this year. Indeed, real GDP growth was 1.5% year-on-year in the first half, which is only a few ticks below-trend. The nation-wide contraction in GDP observed in the third quarter strongly suggests weakness in Ontario during this period. However, even during this time, Ontario’s growth likely outperformed the nation overall, owing in part to a rise in motor vehicle exports. 

Economic growth this year has been supported by firm manufacturing activity (healing global supply chains) as well as capital investment. The fastest population growth in decades is providing a key underpinning to the overall expansion, masking a soft performance in per-capita consumption this year. Elevated borrowing costs have been a major headwind to Ontario’s highly levered households (Chart 1). And, we’re expecting much of the same next year as well, with weak consumer spending driving a wedge between Ontario’s and Canada’s economic growth. 

Zeroing in on housing, resale markets in the province are among the weakest in the country. Following rate hikes in the summer, home sales fell about 20% from May through October. However, activity may be turning a corner, as sales were up 2% m/m in November amid a pullback in mortgage rates in tandem with bond yields since the beginning of October. Notably, average prices fell 5% from their peak in June through November, although with conditions the loosest they’ve been since the financial crisis (Chart 2), they are likely to drop further. Indeed, we expect them to decline through the first half of 2024, before lower rates and a resilient economy propel them higher in the second half. However, the very challenging affordability backdrop should restrain the pace of growth. This soggy price backdrop has not yet dissuaded builders, with starts and completions running at multi-year highs. And, homebuilding will receive a boost moving forward from the federal/provincial decision to drop HST charges on purpose-built rental construction.

In the latest fiscal update, base spending growth was modestly upgraded for FY 2023/24, while the fuel tax suspension was extended to June 2024. In our view, neither action is likely to meaningfully move the dial on growth.  

Chart 1 shows inflation-adjusted retail spending in Ontario and Canada, indexed to March 2022, from March 2022 to September 2023. In September 2023, Ontario's index value was 96.2 while Canada's was 102.4. Ontario's index peaked at 103 in June and declined steadily thereafter, with the lowest value hit being 95.7 in August 2023. Canada's index peaked at 103.1 in May 2023 and have dropped slightly since that time. Its lowest value was 99.8 in July 2022, but it has generally trended higher since March 2022.
    Chart 2 shows Ontario's sales-to-new listings ratio from 1988 to 2023. In November 2023, the ratio hit 40.4%, which was around the lowest since the 2008/2009 Global Financial Crisis and well below the long-term average of 56%. The lowest the ratio ever hit was 26% in 1990 while the highest was 86% in 2021.

Québec


              Quebec Economic Forecasts

                               [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 0.3 0.4 1.1
Nominal GDP 4.0 3.4 3.1
Employment 2.3 0.0 0.7
Unemployment Rate (%) 4.4 5.9 6.0
Housing Starts (000's) 42.9 44.6 47.1
Existing Home Prices 1.3 4.4 3.0
Home Sales -12.8 7.1 8.5

 

In recent quarters, Quebec’s economy has been among the weakest performing provincial economies.  Real GDP contracted at a 2% annualized pace in the second quarter and looks likely to have fallen again in Q3, barring a big growth surprise in September (Chart 1). Although this would fit with some analysts’ simple definition of a technical recession, the labour market has bucked this recessionary signal by generating 50k net new jobs over the same period.

Weakness this year has been particularly pronounced in construction, reflecting a pullback in the residential sector after unsustainable years in 2021 and parts of 2022. This weakness has also weighed on manufacturing activity, evidenced by notable declines for materials that are heavily used in construction. Meanwhile, higher interest rates have impacted retail and services spending. The largest surprise has been utilities output, which dropped to its lowest level since 2012 in August, perhaps due to drought conditions pulling down hydroelectric output (Chart 2).

Also notable is the weakness in consumption in Quebec relative to Canada, despite a hefty household savings stockpile, lower household debt levels and solid wage growth.   A major part of the answer likely lies in the fact that disposable income has fallen compared to the end of 2022 as generous provincial government support has unwound. 

For 2024, we’re forecasting a slightly better growth performance than this year, as growing prospects that the BoC will pivot and lower interest rates by the spring should support growth in construction spending and the housing market, the latter of which should boost the finance, insurance, and real estate sector. We’re also anticipating a turnaround in utilities output after what will likely be the largest contraction since at least 1997 this year. Also, the Province’s fall fiscal update contained additional measures relative to the budget, including tax relief and more government spending. There are some near-term challenges in the public sector, with as many as 570k workers hitting the picket lines during parts of November in search of better contracts from the government. Another weeklong strike took place this month, with the looming threat of an “unlimited” walkout by 420k workers (40% of the public sector workforce) if a deal is not reached. We estimate that measures taken so far have had little economic impact, although the threatened actions pose a significant near-term downside risk to growth.

 
Chart 1 shows the quarter-on-quarter annualized % change in Quebec's GDP by industry, from 2022 to 2023. In 2023Q, Quebec's GDP is estimated to have contracted by 0.4%, following a 2.3% contraction in the first quarter. In 2022, GDP growth averaged 1.7%
    Chart 2 shows the February – August change in GDP (in millions of SAAR dollars) across major industries in Quebec. Over this time, output in the finance, insurance and real estate industry went up by $400 million and output in the public sector was up $112 million. In contrast, output fell $219 million in

New Brunswick


         New Brunswick Economic Forecasts

                                 [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 1.1 0.7 1.3
Nominal GDP 3.0 3.1 3.3
Employment 3.4 1.2 0.2
Unemployment Rate (%) 6.6 6.9 7.3
Housing Starts (000's) 4.3 2.8 2.7
Existing Home Prices 4.2 7.0 3.0
Home Sales -13.9 2.3 6.3

With the data largely evolving in line with our previous forecast, we have not made any significant changes to New Brunswick’s (N.B.) economic outlook. At 1.1% in 2023, real GDP growth in the province is estimated to fall in the middle-of-the-pack before slightly overperforming the nation as a whole next year. Spending and labour markets are benefitting from record-setting population gains. But for Canada’s most export-reliant economy, the headwinds from slowing global and domestic growth are continuing to weigh.

With N.B. households carrying relatively little debt, consumers have been better shielded against sharply higher borrowing costs. This has translated into inflation-adjusted retail spending that is tracking positively on the year. Juiced by the rising head-count, growth in employment and the labour force have been running at near-nation highs year-to-date (Chart 1). Momentum in the job market should carry forward into next year especially as the composition of newcomers has been increasingly skewed towards permanent residents. As the population surged, housing starts moved markedly higher on the year and strong demand has led to a less pronounced downswing in housing markets. In fact, home resales are close to their 5-year averages while prices are roughly in line with last year’s peak.

The external backdrop has taken some wind out of the economy’s sails as nominal exports this year are down over 10%. The decline is largely due to lower energy prices. Irving Oil Ltd., the operator of Canada’s largest crude oil refinery in N.B., is also still under a strategic review, which has likely continued to impact oil shipments since June.

Over 90% of the province’s international exports are shipped south of the border, where the economy is expected to decelerate into 2024. However, the outlook for an even weaker  Canadian dollar over the near term could add a layer of support to N.B.’s international exports. Manufacturing sales are also lagging other provinces, down around 8% in the third quarter and on track to record a fourth consecutive quarterly decline. (Chart 2).

The N.B. government’s fiscal backdrop continues to be healthy. In its mid-year fiscal update, the government revealed a projected FY 23/24 surplus of $35.5 million, roughly in line with expectations at the time of Budget 2023. Combined with a favourable net debt profile, the government will continue  to enjoy some fiscal wiggle room in the event that the expected cyclical slowdown is deeper than projected    

Chart 1 shows YTD employment and labour force growth across provinces as of November 2023. New Brunswick has current YTD employment growth at 3.4% with labour force growth at 2.7%. Amongst provinces, PEI leads in employment growth at 5.3% and British Columbia has the lowest employment growth at 1.5%. On labour force growth, PEI leads at 4.9% while Newfoundland is the lowest at 0.3%. Average employment growth across all provinces is 2.7%, while average labour force growth is 2.5%
    Chart 2 shows New Brunswick's manufacturing shipments growth on a quarterly basis since Q1-2022. As of Q3-2023 manufacturing shipments are down -7.8% year-on-year (y/y). Given one extra data point in October 2023, Q4-2023 manufacturing shipments are tracking a 5% decline, which would be the fourth consecutive quarterly decline.  Between Q1 and Q3-2022, manufacturing shipments grew by an average of 35% y/y.

Nova Scotia


 Nova Scotia Economic Forecasts

[ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 1.4 1.0 1.2
Nominal GDP 4.1 3.9 3.2
Employment 2.5 0.8 0.3
Unemployment Rate (%) 6.4 6.8 6.9
Housing Starts (000's) 6.3 6.4 5.9
Existing Home Prices 4.0 5.1 2.6
Home Sales -17.8 5.3 10.2

 

 

We’re forecasting gain of around 1.5% for Nova Scotia’s economy this year. While this is down from the heady 3% increase notched in 2022 (revealed by Statcan in early November), it’s above the 10-year average. Sizzling population growth continues to be the most important driver, underpinning a robust gain in household consumption (according to our internal card spending data). Construction is also seeing a significant boost. The provincial government is implementing a massive capital plan and non-residential building construction is on the rise. Meanwhile, housing starts are trending at their highest level in many years (Chart 1). Note that residential construction will see support from the government’s decision to drop the provincial portion of the HST on purpose-built rental construction. 

While construction investment will likely remain firm next year, household spending appears on track to slow as elevated borrowing costs weigh. Moreover, job growth is cooling, and the unemployment rate is well off the lows seen earlier in the year. And, while wage growth is currently strong, it’s likely only a matter of time before it slackens as well, especially with the unemployment rate set to march higher through 2024. It should be noted that population growth should remain strong next year, while Nova Scotia’s households are holding relatively low levels of debt. As such, some spending outperformance relative to the rest of Canada is a reasonable bet for 2024. 

In the latest fiscal update, Nova Scotia’s FY 2023/24 deficit was projected at $264 million (0.5% of GDP) – about in line with what was expected in the spring budget. Government output has seemingly struggled to gain traction for much of this year, evidenced by declining public sector headcounts. However, at the national level, government spending growth was robust in the third quarter on the back of expenditures tied to disaster relief. Nova Scotia’s economy likely got a near-term boost from this source as well, after the bevy of natural disasters which hit in Q3.

In Nova Scotia’s housing market, average home prices continue to hold at levels some 70% higher than where they were before the pandemic struck (Chart 2). Higher rates have caused home sales to fall dramatically, although supply continues to hold at low levels, keeping markets tight. Accordingly, we’re expecting prices to drop only modestly through early 2024, before recording gains thereafter as rates drop.

Chart 1 shows the 6-month moving average of annualized housing starts in Nova Scotia, from 1990 through 2023. In November 2023, the trend in housing starts was 8.9k units (the highest on record) and well above the 5.5k reading recorded in November 2022. In contrast, the series low is 2.1k units recorded in April 2014. The long-term average is 4.5k units.
    Chart 2 shows the average home price in Nova Scotia, from 2015 through 2023. In November 2023, this measured at $430k, 11% higher than the same period in 2022 and nearly 70% above the pre-pandemic level of $257k recorded in February 2020. From 2015 through February 2020, home prices averaged $233k. From March 2020 to November 2023, home prices have averaged $370k.

Prince Edward Island


                   P.E.I. Economic Forecasts

                                   [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP 2.3 1.4 1.5
Nominal GDP 5.1 4.4 3.5
Employment 5.6 2.9 0.5
Unemployment Rate (%) 7.3 7.8 8.0
Housing Starts (000's) 0.8 1.1 1.2
Existing Home Prices -0.4 -0.4 2.1
Home Sales -6.7 4.9 8.4

Despite recently losing the mantle of “fastest population growth in the country” to Alberta, PEI’s population continues to swell at record-breaking rates. Immigration has been the biggest driver so far this year although interprovincial migration has remained strong, even with the rise of return-to-office work policies. 

The Island has also improved its ability to retain immigrants in recent years, meaning that the benefits from these newcomers will be more fully felt over the medium-term. And, from an economic growth perspective, these benefits are plentiful. For one, consumption in PEI remains well supported, with inflation-adjusted retail spending growth running at a relatively strong pace. At the same time, labour markets are better supplied than many other places in the country, fueling the fastest job growth in Canada (Chart 1). We still expect consumption to slow through next year on the back of this year’s run-up in interest rates. However, with Islanders recording some of the lowest household debt levels in the country, and consumption likely to be further juiced by  robust population growth, a continued outperformance relative to the rest of Canada is likely on tap.

Policymakers have also had to adapt to this population expansion by rolling out a hefty infrastructure spending plan. This is supporting non-residential investment at a time when residential spending has pulled back from a robust 2022. Next year, we’re expecting population gains, alongside the government’s decision to drop their portion of the HST on purpose-built rental construction, to support higher housing starts in 2024 and 2025. 

Manufacturers have enjoyed a solid year so far on the Island (shipments are up 14% year-to-date). Even with poor agricultural production (which itself slices a big chunk from 2023 growth), food manufacturing shipments are up, boosted by the removal of the U.S. ban on potato products. However, even with a competitive Canadian dollar, the backdrop will soon become more challenging as U.S. growth cools through 2024 (Chart 2). This will also weigh on tourism spending, which has already hit a wall. Notably, overnight stays on the Island were down modestly year-on-year through October.   

Chart 1 shows year-to-date, year-on-year employment growth so far in 2023 in PEI and the rest of Canada. Through November, Job growth was 5.3% in PEI and 2.4% in the rest of Canada.
    Chart 2 shows the quarter-on-quarter annualized percent change in U.S. real GDP growth, from 2022Q3 through 2024Q4. After averaging 2.5% from 2022Q3 to 2023Q1, GDP growth increased to 5.2% in 2023Q3. We're forecasting it to slow to 1.1% in 2023Q4, average 0.6% through the first half of next year, and average 1.3% in the second half of 2024.

Newfoundland & Labrador


        NFLD & Labrador Economic Forecasts

                               [ Annual average % change, unless otherwise noted ]

Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics.
Economic Indicators 2023F 2024F 2025F
Real GDP -0.4 2.2 1.3
Nominal GDP -3.9 5.3 3.2
Employment 1.7 -0.3 0.0
Unemployment Rate (%) 9.8 10.6 11.4
Housing Starts (000's) 1.2 1.3 1.3
Existing Home Prices 1.4 4.8 1.9
Home Sales -15.5 4.3 7.1

Prospects for Newfoundland and Labrador’s (N.L.) oil and mining sectors soured over the year, likely driving the economy into a contraction as a result. The sputtering of activity in these industries–which account for a sizeable 25% of the province’s output–largely overshadowed otherwise decent performance across most other economic indicators. Still, we’ve penciled in a real GDP decline of 0.4% for 2023, which would mark a second consecutive annual decline after the province struggled to gain momentum in 2022. Despite the step back, a strong turnaround in real GDP is expected next year (+2.2%), which puts N.L. at the top of the 2024 growth charts.

The delayed restart of the Terra Nova oilfield coupled with maintenance at other offshore facilities was a one-two punch for N.L. oil sector this year. Chart 1 shows that overall crude oil production is due for another sizeable pullback, slumping now for a third straight year. Fortunately, the Terra Nova oilfield will be operational and in full force as we move into 2024, alongside other major offshore facilities, which should result in robust oil production growth next year. Terra Nova is now expected to add 70 million barrels of oil to its production capacity over the next ten years.

On the mining front, a sharp pull-back in prices relative last year’s peak levels for iron ore, nickel and copper have weighed on mineral shipments, which are on track to decline by 10–15% for 2023 as a whole (Chart 2). Despite the pullback, the mining sector remains a medium-term bright spot for N.L.’s economy as mineral exploration expenditures ramp up. Further, base metal prices are poised to find support as central banks move into a less restrictive policy mode next year, spurring an increase in global demand. 

The Province also recently signed an agreement with the federal government that, if passed, would allow N.L. to solely regulate its renewable energy developments on various Bays around the province. This would mark a significant economic opportunity for the jurisdiction and would support future investment for offshore wind development projects. 

The performance of domestic-oriented industries has held up comparatively well notwithstanding the Bank of Canada’s aggressive rate hiking campaign. Decent employment strength has broadly supported consumer spending, with retail sales slated to advance this year as of the third quarter. What’s more, internal TD spending data points to robust household spending, with N.L. leading all provinces in year-to-date outlays.    

Chart 1 shows annual oil production figures for Newfoundland and Labrador. Production is forecast to contract for a third straight year by around 13%. This follows declines in 2021 (-9.6%) and 2022 (-10.4%). Since 2005, the strongest year for oil production was in 2005 where it grew by 22.5%. On the flip side, 2012 saw the deepest pullback in oil production growth of -25.8%.
    Chart 2 shows the value of mineral shipments for Newfoundland and Labrador. In 2023, mineral shipments are expected to drop to C$4.5 billion from C$5.2 billion a year prior. At its peak, mineral shipments in 2021 totaled C$5.97 billion. Over the years, iron ore (dark green), has contributed most to mineral shipments, contributed anywhere between 50 and 75% of total shipments.

Forecast Table


Provincial Economic Forecasts  

F: Forecast by TD Economics, December 2023. Source: Canadian Real Estate Association, Canada Mortgage and Housing Corporation, Statistics Canada, TD Economics.
Provinces Real GDP
(% Chg.)
Nominal GDP
(% Chg.)
Employment
(% Chg.)
Unemployment Rate
 (Average, %)
Housing Starts
(Thousands)
Home Prices
(% Chg.)
2023F 2024F 2025F 2023F 2024F 2025F 2023F 2024F 2025F 2023F 2024F 2025F 2023F 2024F 2025F 2023F 2024F 2025F
 National 1.1 0.5 1.5 2.5 3.5 3.5 2.4 0.6 0.8 5.4 6.5 6.6 247.6 232.9 232.1 -3.3 -3.2 4.3
Newfoundland & Labrador -0.4 2.2 1.3 -3.9 5.3 3.2 1.7 -0.3 0.0 9.8 10.6 11.4 1.2 1.3 1.3 1.4 4.8 1.9
Prince Edward Island 2.3 1.4 1.5 5.1 4.4 3.5 5.6 2.9 0.5 7.3 7.8 8.0 0.8 1.1 1.2 -0.4 -0.4 2.1
Nova Scotia 1.4 1.0 1.2 4.1 3.9 3.2 2.5 0.8 0.3 6.4 6.8 6.9 6.3 6.4 5.9 4.0 5.1 2.6
New Brunswick 1.1 0.7 1.3 3.0 3.1 3.3 3.4 1.2 0.2 6.6 6.9 7.3 4.3 2.8 2.7 4.2 7.0 3.0
Québec 0.3 0.4 1.1 4.0 3.4 3.1 2.3 0.0 0.7 4.4 5.9 6.0 42.9 44.6 47.1 1.3 4.4 3.0
Ontario 1.1 0.3 1.5 3.8 3.2 3.5 2.5 0.3 1.1 5.6 6.9 6.9 95.1 87.1 89.4 -5.7 -5.1 2.1
Manitoba 1.6 1.0 1.4 3.5 4.0 3.2 2.5 1.4 0.8 4.9 5.5 5.4 6.8 5.6 6.2 -2.4 5.0 3.4
Saskatchewan 1.2 1.2 1.5 -0.9 3.8 3.2 1.7 1.6 0.9 4.8 5.5 5.6 4.5 4.3 4.6 0.0 3.1 4.2
Alberta 2.2 1.4 1.8 -1.3 4.4 3.7 3.5 1.4 1.0 5.8 6.3 6.4 34.4 33.3 31.4 1.4 5.1 3.6
British Columbia 0.9 0.3 1.8 2.3 3.1 4.0 1.5 0.7 0.6 5.1 6.1 6.1 51.2 46.3 42.3 -1.4 -0.9 2.2

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