Deficits will weigh on provincial economies in 2011, says Conference Board
Ottawa, ON -- Most Canadian provinces are turning their attention to reducing fiscal deficits in 2011, which will restrain government spending and weaken their economic growth prospects for the year, according to The Conference Board of...
Ottawa, ON — Most Canadian provinces are turning their attention to reducing fiscal deficits in 2011, which will restrain government spending and weaken their economic growth prospects for the year, according to The Conference Board of Canada’s Provincial Outlook-Winter 2011.
“Only four provinces are forecast to post surpluses in the 2010-11 fiscal year – Saskatchewan, Newfoundland and Labrador, Nova Scotia and Alberta,” said Marie-Christine Bernard, associate director, Provincial Outlook. “As governments start to rein in deficits, public investment and spending growth will contribute little to provincial economic growth over the next few years.”
Provincial program spending grew at an unsustainable pace over the last five years. Stimulus funding added to deficits, but governments are now beginning to cut back. However, the provinces will find it harder to balance their books than the federal government over the next few years because health care costs continue to rise sharply.
Strong resource prices will make Saskatchewan and Newfoundland and Labrador the fastest growing provincial economies in 2011. Anchored by growth in the potash industry and steady gains in the energy sector, Saskatchewan is poised for a period of prolonged economic prosperity. Saskatchewan’s real growth domestic product is forecast to increase by 3.9% in 2011 and 4.5% in 2012, which would be the fastest growth among the provinces in both years.
Newfoundland and Labrador is expected to post growth of 3.6% this year. Solid production increases in mining, particularly nickel and iron ore, along with high oil prices will bolster economic activity. Unemployment is expected to drop from 14% in 2010 to 11% in 2012, a 40-year low.
Alberta’s budget is balanced this year because it is using its accumulated reserves to avoid a deficit. Growth in the energy sector will support the construction, manufacturing and transportation industries, offsetting a lacklustre performance in the services sector. The economy will grow by 2.4% in 2011, and the province will recover all the jobs lost during the recession by the end of the year.
Ontario’s economy is expected to grow by 2.1% this year. A resurgence in business confidence and investment will outweigh declines in construction spending (both residential and government infrastructure). Exports- particularly automobiles – will continue to grow as the US consumer starts to rebound.
Manitoba is one of the few provinces forecast to post stronger growth in 2011 than in 2010. Growth will accelerate to 2.0% on the strength of improving performance in mining, manufacturing and utilities industries.
Post-Olympic blues will temper British Columbia’s outlook-weak growth in a number of service industries will cut real GDP growth in half to just 1.9% in 2011. Continued weakness in the US housing market will hinder demand for forest products and other provincial exports. Residential construction and government infrastructure spending will decline this year.
In Quebec, rising taxes- part of the effort to bring its finances under control – will cut into disposable income and households spending power. This weakness in the domestic economy will limit real GDP growth to 1.8% in 2011.
The Maritime provinces will also be part of the trend toward weaker economic growth in 2011. Wind electricity generation contributed to Prince Edward Island’s economy last year, and it is expected to carry over this year, supporting growth of 2.5% in 2011.
Nova Scotia’s prospects over the next two years are muted. Austerity measures by both the federal and provincial governments and limited residential and business non-residential investment will combine to slow real GDP growth to 1.6% in 2011.
The New Brunswick government is firmly focused on eliminating the deficit over the next four years, so the public sector will provide limited support to growth. As governments withdraw infrastructure spending, the construction industry will continue to struggle. New Brunswick can expect its economy to grow by 1.3% this year.