The best performing provinces in 2017 and why

At first glance, the recently released 2017 Provincial and Territorial Economic Accounts appear past their “best before” date. However, without this data it is impossible to put current provincial economic data in perspective.

After posting back-to-back declines of -3.7% and -4.2% in 2015 and 2016, the Alberta economy grew by 4.4% in 2017, the fastest of Canada’s ten provinces. Virtually all of this pick-up in growth was due to a rebound in world oil prices and a concomitant 37% y/y increase in the value of the province’s oil exports. Consistent with the province’s 2017 Capital Spending Survey results, non-residential investment continued to trend lower for the third consecutive year. Also, because energy production is capital and not labour intensive, total employment in Alberta increased by a rather modest 1% y/y in 2017 following a -1.6% decline in 2016. Despite the province’s difficulties in getting its oil to tidewater, year-to-date total employment is up by 1.9%, second only to Prince Edward Island. This being said, although the province’s economic prospects were brightened by Imperial Oil’s recently announced plan to proceed with its Aspen Oil Sands Project, the record discount of Western Canada Select to West Texas Intermediate has raised serious concerns about the near- and possibly longer-term prospects for energy investment in the province.

Canada’s second fastest growing provincial economy in 2017 was Alberta’s neighbour, British Columbia. It expanded by 3.8% driven by a combination of a 4.6% increase in consumer spending (mostly gains in durable goods i.e. motor vehicles) and a 17.6% y/y surge in non-residential investment. Major projects which contributed to this gain included the Sunrise Gas Plant and the Northeast British Columbia Expansion Project, occurring despite the shelving of the Trans Mountain Pipeline expansion. Looking ahead, the recent approval of the Kitimat LNG Project strongly suggests that non-res investment will make a significant positive contribution to growth in 2019 and beyond.

Fuelled by very strong growth of residential and non-residential construction and a solid 2.4% jump in consumer spending, the Prince Edward Island economy posted growth of 3.5% y/y in 2017. This was the third largest year-over-year gain in the country and the province’s best showing in thirteen years. A key factor contributing to this rapid growth was a very large inflow of international migrants that helped to boost PEI’s population by 2.4% in 2017, almost twice the national average and contributed to a 70% y/y increase in housing starts. While there are signs that hiring plans in the province have cooled somewhat, employment growth remains strong heading into 2019.

After posting modest gains of 1.2% y/y and 1.6% y/y in 2015 and 2016, the Manitoba economy expanded by 3.2% in 2017, its strongest showing since 2008, and the fourth fastest in the country. Probably the best word to describe the province’s economic performance last year was ‘balanced’, given that it was driven by increases in consumer spending, business investment and a solid gain in total exports, the bulk of which were shipped to other provinces. Although Manitoba has experienced a steady outflow of migrants to other provinces since 2004, this population drain was more than offset by a net inflow of international migrants in 2017, causing the province’s population to increase by 1.6%, the second fastest gain in the country.

Coincidentally and for the first time in more than thirty years, the two provinces in Central Canada, Ontario and Quebec, grew by 2.8% in 2017, roughly halfway between Alberta with growth of 4.4% and Newfoundland, which posted growth of 0.9%. However, a look under the hood of the two economies reveals significant differences. In Ontario, consumer spending was by far (81%) the major driver of growth in 2017. It was fueled by a combination of low interest rates and a near record inflow of international and interprovincial migrants. However, despite strong growth of the province’s major trading partner, the United States, the province’s exports were little changed compared to 2016, as was non-residential investment on structures. In Quebec, a smaller (than Ontario) contribution to growth by consumers was accompanied by increases in residential construction and spending on machinery and equipment. Hiring in the province also accelerated to +2.2% in 2017.

Driven primarily by stronger external demand for its key resources (oil, potash and canola), the Saskatchewan economy grew by 2.2% in 2017 following back-to-back declines of -0.9% and -0.4% in 2015 and 2016 respectively. Although investment spending in the Wheat province was also positive in 2017, due in part to construction of the Regina Bypass and the Chinook Natural Gas Power Station, total employment was little changed following a -0.9% decline in 2016. Year-to-date hiring is up slightly. However, according to the CFIB, employment plans have weakened, possibly due to the sharp drop in crude oil prices.

Following gains of 0.7% in 2015 and 1.4% in 2016, New Brunswick’s economy grew by 1.8% in 2017. The major contributor to this slightly faster pace of growth was a 5.5% rebound in exports fuelled literally by a 37% increase in foreign sales of petroleum products that was accompanied by faster growth of both consumer spending (mainly motor vehicles) and of non-residential investment in structures.

Despite a pullback in non-residential investment due in part to the completion of the Moose River Mine, Nova Scotia posted growth of 1.5% in 2017 largely on account of a 2.8% increase in consumer spending and a slight gain in exports of seafood, lumber and rubber, supported by healthy U.S. demand and increased demand in China. After contracting by 0.4% y/y in 2016, total employment in the Bluenose province was up by a rather modest 0.7% y/y in 2017 and, given a steady rise in the province’s job vacancy rate midway through 2018, it appears likely to move higher going into 2019. This positive outlook is overshadowed to some extent by the winding down of the Maritime Link Project and the Deep Panuke and Sable Island natural gas projects.

The Newfoundland and Labrador economy downshifted in 2017, posting growth of 0.9% following a gain of 1.8% in 2016. Virtually all this pull back was the result of a very sharp (18% y/y) drop in gross fixed capital formation, stemming primarily from the winding down of construction and the ramping up of production at the Hebron Oil Field, as well as at the Muskrat Falls Hydro Project. Due to the slowdown in labour-intensive construction, total employment in the province contracted by -3.8% and there was a significant net outflow of individuals to other provinces which has persisted into mid 2018. However, the province has received a significant boost from the fact that its oil is benchmarked against Brent Crude, which currently enjoys a $10 premium vis-à-vis West Texas Intermediate. Going forward, the impact of an aging population, a large fiscal deficit and persisting outmigration will weigh heavily on the province’s longer-term prospects.

National and Provincial Gross Domestic Product and Total Employment