Faceoff: Comparing BC and Ontario Economies

Greek Flag by Mr T
Greek Flag by Mr.T

We've all been reading about the international turmoil in European and world markets. Here in Canada, politics and the news has erred on the side of caution, downplaying the impact of the global economic recession on Canadian and Provincial economies. Most of us are well aware that the European market is back in murky waters after having been more stable for a brief period at the beginning of the year. While the Greek flag has become synonymous with drama, the impact of the European economy on Canada is yet to be seen.  But one thing is for certain:  Canadian regions will benefit greatly from our diversity of trade with both the US and Chinese markets and won’t be taking a direct bullet for the European Union.

Looking at the remainder of 2012, The Royal Bank of Canada (RBC) is predicting a slight acceleration in the Chinese market as well as potential growth in the U.S. economy for the second half of the year. Although no economist has a crystal ball, the forecast for a strengthening U.S. economy will be a key driver of provincial economic growth in both 2012 and 2013 in Canada— particularly for provinces such as Ontario, whose manufacturing industry depends heavily on the U.S. market. In general, strategists are predicting that we shouldn’t expect any major problems or hurdles to halt the economical development of our provinces.

A hot topic in provinces such as BC and Alberta is the concept of a somewhat East/West economic split here in Canada, with the East benefiting more from its U.S. trade connection and the West relying on natural resource trading to fuel its economy.  Here in the Western provinces, the outlook is good, particularly in regards to the extent to which provincial economies stand to benefit from a commodities-related boom. The province of Saskatchewan certainly serves as the poster child for a natural resource based economy centered around commodities such as natural gas and potash.

You're Looking good, BC

So far, British Columbia has kept up to the national average of 2.6 per cent growth this year and according to RBC, this won't change any time soon. Craig Wright, senior vice-president and chief economist at RBC, stated:

We saw a broad-based improvement across the provincial economy early this year. Employment was up year-over-year, unemployment dropped to a three-year low in April, and retail sales rose to their strongest annual rate in two years.

RBC building by Richard Alvin
RBC building by Richard Alvin

Additionally, we all know the real estate market is a sector were BC shines. And while the market has seen a slight cool down in Vancouver, housing starts are still ahead of the stats taken from the same time last year, indicating that we're a long ways away from seeing a bubble burst.

Mining in the region hasn't fared so well, with various ups and downs hitting good numbers with natural gas but falling short with metals such as copper, iron ore, and silver. Lack of trade and a weak international market is showing more in this sector than others.

On the bright side, RBC predicts that two vast investment projects are going to boost BC’s economy significantly. The federal government’s $8 billion order for seven non-combat ships from North Vancouver’s Seaspan PLUS the $3.3 billion modernization of Rio Tinto Alcan’s aluminum smelter in Kitimat (boosting its capacity by 40 per cent) should help infuse the economy with some heft and keep the GDP growth in 2013 at a desirable 2.9 per cent.

Unfortunately, exports in BC however aren't faring so hot. This is perhaps a natural response to problems in the European and Japanese markets. On the upside, the highlight so far this year has been a 230 per cent jump in coal exports to China... although environmentalists might disagree!

How are things in your neck of the woods eh? Ontario Anticipates Slow but Steady Progress

The average economic growth for Canada currently stands at projected 2.6 per cent. According to the RBC Economics Provincial Outlook, Ontario will reach 2.5 per cent growth  — just 0.1 per cent short of the national average for 2012. However, once Ontario’s auto industry reaches its production capacity and lower housing starts starts showing in diminished residential construction (is the condo boom in Toronto slowing?), the average growth in the region is predicted to fall to 2.4 per cent.

The recovery in the U.S. motor vehicle market has had a visible effect on Toronto’s leading automotive industry. In the first third of this year, auto production reached numbers slightly over 2.5 million (annualized) — just 0.1 million below the average during the ten years’ preceding recession as further explained by Wright:

Recovery in Ontario’s auto sector was one of the main factors contributing to a rise in provincial exports in the early months of this year. Stronger exports should reduce Ontario’s trade deficit this year and external trade will add to provincial growth for the first time in a decade,
Construction by Jaysin Trevino
Construction by Jaysin Trevino

The Ministry of Ontario’s provincial account however, doesn’t quite as good news to the region. In a province full of government jobs, public sector spending cuts are responsible for an almost  five per cent decline in public sector jobs and also, significant reductions in public spending of both services and goods as well as capital investments.

Despite the fact that the public sector closed up shop and appears to have gone into  saving mode, residential investments in new home construction are up by nearly 17 per cent compared to last year’s numbers. RBC predicts Ontario starts to rise from 67,800 units in 2011 to 74,800 units in 2012 before easing to 68,500 units in 2013.

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