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BMO Financial Group: 2017 Economic Forecast

TORONTO — Canada’s regional economic growth landscape should become a little less rugged in 2017, with the gap between the best and worst performing provinces expected to narrow. British Columbia is expected to lead the pack for a third straight year, but growth should downshift slightly to around 2.5% alongside softer housing market activity in the wake of 2016 policy changes—that will follow three years at 3% or better. Ontario is expected to hold at a solid 2.2%, while Quebec should accelerate for a second consecutive year, albeit to a still-modest 1.5%, as the labour market in the province continues to shine. The story in these provinces isn’t changing all that much, with the lagged impact of a weaker loonie, low interest rates, fiscal stimulus and improving demographic trends (particularly in B.C. and Ontario) helping to drive above-trend economic growth.

The bigger change in 2017 will likely be an end to Alberta’s recession, which is estimated to have caused a steep 6% decline in real GDP in the two years through 2016. Growth should return next year as oil prices are moving higher, production will be comparably stronger to the wildfire-impacted year in 2016, while Federal and Provincial stimulus will be flowing. In fact, it’s not inconceivable to see Alberta posting the strongest growth performance next year, at least on a real GDP basis. The reality, however, is that broader economic conditions (e.g., the housing market, commercial real estate and interprovincial population flows) will continue their adjustment, and face a much more subdued recovery than that experienced after the Great Recession. In particular a strong recovery in housing starts is unlikely, while there is still significant new supply to come onto Calgary’s already saturated commercial real estate market. Also, while capital spending on projects underway in the oilsands will support overall business investment, oil prices in the $50-to-$60 range won’t be sufficient to spur investment on new projects. Saskatchewan and Newfoundland & Labrador are also expected to return to modest growth, while Atlantic Canada more broadly plods along around the 1% mark.
The bottom line is that Canada’s economic growth prospects remain highly regional in nature, particularly when it comes to real estate. On that front, the massive disparity in performance among the strongest and weakest markets should narrow somewhat through 2017.

Submitted by Robert Kavcic, Vice President and Senior Economist, BMO Financial Group.

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