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BMO Bank of Montreal

December 02, 2011 13:15 ET

BMO Economics: Canadian Economy Rebounds from Early-Year Disruptions

- Growth rebounded in Q3, leading to growth of 2.3 per cent for 2011

- Resource-based provinces leading the way

- Growth of 2.0 per cent expected in 2012

TORONTO, ONTARIO--(Marketwire - Dec. 2, 2011) - The Canadian economy has regained momentum after temporary shocks tripped up growth earlier in the year, according to a preview of the Provincial Monitor report from BMO Economics. The full Provincial Monitor will be released next week, providing more detail for each province for housing, employment and industry sectors.

"While auto-sector supply chain disruptions and Alberta wildfires carved into second-quarter growth, the third quarter saw a rebound to 3.5 per cent annualized GDP growth, largely due to a snapback in net exports," said Michael Gregory, Senior Economist, BMO Capital Markets. "We expect 2011 to end up with 2.3 per cent growth for the year."

Despite the rebound, Canadian growth still faces ample headwinds in the year ahead, including the financial market turmoil emanating from Europe's debt crisis, still-modest U.S. economic growth, cooling emerging market demand and downbeat consumer and business confidence. "These headwinds should keep real GDP growth at a modest 2 per cent pace for all of 2012," noted Mr. Gregory.

Western Canada

The resource sector continues to power growth in Western Canada, with Alberta and Saskatchewan on pace to post 3 per cent-plus real GDP growth this year, and hold on to much of the momentum through 2012. Growth in British Columbia is somewhat more challenged, given moderating Chinese export demand and what now appears to be a cooling housing market, while Manitoba again suffered a disappointing crop year; but both of these provinces should still outperform in 2012.

Central Canada

Fiscal restraint continues to dampen the medium-term outlook in Ontario and Quebec, where growth will struggle to top 2 per cent through 2012. Ontario's economy has endured a bumpy ride in 2011, with the auto sector supply chain hit by multiple shocks such as the tsunami in Japan and flooding in Thailand. In Quebec, higher sales and health contribution taxes, both set to rise again in 2012, will eat into some of the recent momentum seen in aerospace manufacturing.

Atlantic Canada

While modest U.S. economic growth and a strong loonie will continue to weigh on Atlantic Canada exports, Nova Scotia has been awarded a $25 billion Federal shipbuilding contract that will support economic growth for years to come. Real GDP growth should accelerate above 2 per cent by 2013, when work is presumed to begin. However, fiscal restraint remains an ongoing drag on growth in much of the region. New Brunswick's capital spending budget, for example, is down more than 30 per cent in fiscal 2011-2012 and, with the exception of Newfoundland & Labrador, all provinces in the region still have budget balancing work to do.

Real GDP Growth Rate (per cent):

2010 2011 2012
Canada 3.2 2.3 2.0
BC 3.0 2.4 2.3
Alberta 3.3 3.3 2.8
Saskatchewan 4.0 3.0 2.9
Manitoba 2.4 2.0 2.3
Ontario 3.0 2.1 1.9
Quebec 2.5 1.8 1.7
New Brunswick 3.1 1.4 1.5
Nova Scotia 1.9 1.6 1.8
PEI 2.6 1.7 1.4
Newfoundland & Labrador 6.1 3.5 1.6

This week's complete edition of Focus, which includes the preview report, can be downloaded at www.bmocm.com/economics.

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