B.C. economic growth to rank second in Canada: CIBC World Markets Inc.

Resource sector driving growth

VANCOUVER , Jan. 28 /CNW/ - Reinvigorated global demand for commodities and favourable government policies should see B.C.'s economic growth be second only to Saskatchewan in 2010, finds a new report from CIBC World Markets Inc.

The report notes that a rebound in the global economy bodes well for resource development in B.C. as well as in most of western Canada . "The West will reap the benefits of reinvigorated Asia-Pacific growth," says Warren Lovely , senior economist in CIBC's latest Economic Insights report. "We anticipate success in broadening and deepening B.C.'s export base, with expanded transportation infrastructure allowing the province to lever its Gateway to Asia status."

Mr. Lovely expects demand for resources will drive GDP in B.C. up 2.8 per cent in 2010 and 3.4 per cent in 2011, well above the national average. "Incented by an attractive royalty regime, shale gas deposits are being pursued aggressively, complementing an upturn in other mining activity," notes Mr. Lovely . He says this is a big turnaround from 2009 when the global recession saw demand and prices for resources plummet. This resulted in B.C. and the other commodity-based provinces taking four of the bottom five spots in real GDP growth in the country.

He believes that last year's cooling in once-overheated housing markets, wages and material costs helped set the stage for renewal. "It was the West, after all, that earlier sparked concerns of a housing bubble and labour shortages. A global financial crisis and resource price skid put an end to Western Canada's housing boom, but in recent months, housing activity has re-accelerated. Business investment is likewise returning. The stage is again set for economic outperformance."

Mr. Lovely expects that B.C.'s adoption of a harmonized sales tax will spur investment and provide an avenue for enhancing a relatively poor productivity record. While he doesn't see the end of Olympic spending as a significant drag on the economy, he does believe a weak U.S. home construction market will dampen the outlook for the forestry industry in the province.

The report finds that the economic recovery will not be even across the country. On the back of strong oil, potash, agriculture and uranium sectors, Saskatchewan is expected to lead economic growth in the country in 2010 with GDP up 3.0 per cent. Newfoundland and Labrador is forecast to see a big rebound this year with its GDP climbing 2.6 per cent as output recovers from production difficulties that plagued 2009. The economy also benefits from strong consumer spending and business investment. Barring disruptions, growth in 2011 should strengthen further to 3.3 per cent, with large energy projects having the potential to deliver strong growth longer-term.

A newfound availability of cost-effective inputs, alongside a recovery in commodity prices, is sparking re-investment in Alberta. But a still-tentative consumer suggests that the province will be slower to re-accelerate in 2010 seeing GDP growth at 2.4 per cent for the year. However, by 2011 growth is expected to reach 4.2 per cent, tops in the country, just ahead of Saskatchewan at 4.1 per cent.

In badly hit Ontario, inventory restocking will see GDP growth in 2010 beat the national average for the first time since the Canadian dollar began its appreciation in earnest. That resurgence may be temporary, however, as an overvalued Canadian dollar and a reversion to slower U.S. growth is likely to weigh on the economy. A harmonized sales tax, alongside cuts to corporate taxes, will boost competitiveness and help lure jobs. A focus on emerging sectors, such as green power, also looks to pay dividends. Growth in Canada's banking sector also stands to benefit Ontario disproportionately.

Manitoba escaped the recession relatively unscathed, tabling a fourth straight year of above-average growth in 2009. With less ground to be made up, growth should run just in line with the national average in 2010 at 2.3 per cent, climbing to 3.1 per cent in 2011.

Recent outperformance in Québec and the Maritimes likely won't be repeated, with solid, if unspectacular gains due in 2010-11.

Real GDP Performance

    
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    Y/Y %                                    CIBC Forecasts
              Actual         ------------------------------------------------
                2008             2009             2010              2011
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    BC           0.0             -2.2              2.8               3.4
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    Alta         0.0             -2.6              2.4               4.2
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    Sask         4.2             -1.7              3.0               4.1
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    Man          2.0             -0.2              2.3               3.1
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    Ont         -0.5             -3.5              2.4               2.8
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    Qué          1.0             -1.4              2.2               2.7
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    NB           0.0             -0.7              2.2               2.8
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    NS           2.2             -0.4              2.1               2.6
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    PEI          0.5             -0.5              1.8               2.4
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    N&L          0.5             -3.5              2.6               3.3
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    CDA          0.4             -2.5              2.3               3.0
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    U.S.         0.4             -2.5              2.8               2.4
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    Source: CIBC, Statistics Canada
    

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/sjan10.pdf

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For further information: Warren Lovely, Senior Economist, CIBC World Markets Inc. at [phone], [email protected], or Kevin Dove, Communications and Public Affairs at [phone], [email protected]