Quebec and British Columbia are set to lead Canada’s economic recovery, according to a new forecast by TD Bank. Quebec’s GDP growth is expected to accelerate 6.7 per cent in 2021, with B.C. matching that speed, and both outpacing the national GDP growth of 6.1 per cent this year.
But the surge comes after steep declines last year. Quebec’s GDP fell 5.3 per cent in 2020 as the virus ravaged the economy, while B.C. also contracted a relatively more subdued 3.8 per cent.
Quebec’s decision to loosen restrictions in June, a robust housing sector and government support will fuel growth this year, while B.C.’s services sector and lumber industry have been key drivers of the West Coast province.
“The improved outlook is despite a third wave that has imparted more economic damage than endured during the second wave,” wrote TD economists led by Beata Caranci. “Ontario and Nova Scotia seem to have suffered more damage, leaving employment in these provinces furthest from pre-pandemic levels as of May. In contrast, employment is much closer to pre-pandemic levels in B.C., New Brunswick and the Prairies.”
Ontario, the country’s economic powerhouse, will grow at a relatively moderate 5.4 per cent in 2021, after contracting 5 per cent in 2020, TD estimates. “Ontario stands out for it’s go-slow approach,” according to bank’s economists said.
Indeed, Ontario is the only economy that TD downgraded in its report due two key headwinds.
“First, the province’s 3rd wave during April and May was extremely harsh, causing the province to tighten what were already very severe restrictions. These measures made their mark on the economy’s near-term performance, as employment declined 2.5 per cent from March to May,” TD economists said. “Secondly, production distortions in the auto sector owing to semi-conductor shortages are worse than previously assumed, and global supply chain disruptions are weighing on manufacturing elsewhere. Together, these shocks should heavily impact this year’s growth.”
In addition, Ontario’s red-hot real estate industry should also start to come off the boil, as home sales ease.
“We also expect housing starts and pace of home renovations to unwind from their stratospheric levels as high lumber prices eat into builder margins,” TD noted.
Next year, however, the province is forecast to lead GDP growth with a 5 per cent expansion, the bank estimates.
TD’s forecast for Ontario is in contrast to Royal Bank of Canada’s estimates, which see Ontario as among the fastest growing economies in the country this year, growing at 6.3 per cent. While the economy has stagnated due to shutdowns, most affected businesses and workers could be up and running at least partially by August, RBC believes.
“Our view is the provincial economy will quickly make up any ground lost during the second and third waves,” RBC economists said.
A bright spot this year will be Alberta’s economy that’s riding the commodity rally. The province’s 8.2 per cent plunge in GDP last year was the sharpest in its history and the worst among Canadian provinces last year. But the economy is expected to regain some ground this year and emerge as among the fastest-growing in the country, rising 6.4 per cent in 2021 and 4.8 per cent in 2022, TD forecasts.
Alberta’s decision to fully reopen the economy in July should also prove to be a boon, barring a virus resurgence. Still, Alberta’s return to pre-pandemic levels of activity is not expected until 2022, a year behind most other provinces.
Another oil-dependent province will not see the tide lifting its boat. Despite the surge in oil prices, Newfoundland & Labrador will not be able to fully monetize on the boom, with its GDP expanding 4.1 per cent this year and only 2 per cent in 2022 — the weakest growth among Canadian provinces, TD forecasts. The province’s oil production is expected to slow down while the closure of Come by Chance refinery will cap manufacturing growth.