Fixed Income Viewpoint
Provinces – April 2014
Alberta Leads the Pack...Again
After a challenging winter for the North American economy, all sights are now squarely on spring and an expected rebound in growth. The Canadian economy is expected to expand 2.3% this year, up from the 2.0% pace in 2013, and rise a further 2.5% in 2015. The potent one-two punch of a stronger U.S. economy and weaker loonie remain key themes shaping the provincial growth outlook, opening the door for improved relative performance in Central and Atlantic Canada.
Even so, Alberta is expected to remain head-and-shoulders above the pack in the coming year, with sturdy oil prices and a heavy dose of public-sector capital spending providing a boost—partly for post-flood rebuilding, but also because of the infrastructure demands created by a fast-growing population. Indeed, by many measures such as employment growth, retail sales and housing market performance, the province is in a league of its own. Real GDP growth is expected at 3.5% this year and 3.3% in 2015, the only province carrying 3-handles. These growth prospects, widen- ing wage gaps and a low tax burden will continue to draw inward migration from other regions of the country.
The rest of the West is expected to perform closer to the national average in the year ahead. British Columbia’s housing market has balanced out after enduring a soft patch, but growth in China is softening and mining investment is downshifting. In Sas- katchewan, the labour market remains healthy with the lowest jobless rate in Canada and a healthy oil industry, but uncertainty in the pot- ash sector persists and spending growth is cool- ing. And, as in Mani- toba, crop production is assumed to normalize after a bountiful year in
2013.
Central Canada should benefit proportionately
more from the weaker dollar/ stronger U.S. growth combi- nation. Growth in Ontario is expected to improve to 2.3% this year, up from the subdued 1.4% average pace seen over the prior two years—net ex- ports are poised to improve, and the housing market, while expected to moderate, should avoid a severe correction. Longer-term challenges such as labour costs in manufactur- ing will persist, but will get
Robert Kavcic
BMO Nesbitt Burns Inc. robert.kavcic@bmo.com (416) 359-8329
PROVINCIAL GDP
Real GDP Growth Rate (percent)
2014 1.5
2015 0.8
Alberta
2013 3.3
Manitoba
Newfoundland and Labrador 2013 5.5
Prince Edward Island 2013 1.5
Nova
Scotia
2013 1.0
2014 3.5
2015 3.3
British Columbia 2013 1.8
Canada
2013 2.0
2013
2.4
Quebec
2013 1.3
New Brunswick 2013 0.5
2014 2.2
2015 2.4
2014 1.7
2015 2.0
Saskatchewan
2013 3.5
Ontario
2013 1.4
2014 2.2
2015 2.5
2014 2.5
2015 2.7
2014 2.3
2015 2.5
2014 1.3
2015 1.7
2014 2.3
2015 2.5
2014 1.3
2015 1.7
2014 1.7
2015 2.1
Sources: [2013-15] BMO Capital Markets forecasts
FISCAL SUMMARY
FY2014/15
Budget Balance 1 ($ mlns)
% of GDP
Gross Financing Requirements 2 ($ blns)
British Columbia 184 0.1 5.2
Alberta 1,087 0.3 8.4
Saskatchewan 105.4 0.1 1.5
Manitoba (357) (0.6) 4.8
Ontario* (10,100) (1.4) 37.0
Quebec (454) (0.1) 21.6
New Brunswick (391) (1.2) 1.8
Nova Scotia* 18.3 0.0 0.5
PEI* (35) (0.6) 0.2
Nfld & Labrador (538) (1.4) 1.0
Total Provincial (10,480) (0.5) 82.0
1 AB is chng in net assets. SK and QC before fund transfers.
2 Includes provincial Crown corporations.
*Based on latest available update (FY14/15 budget pending).
S&P Moody’s DBRS
British Columbia AAA Aaa 2 AA (high)
Alberta AAA Aaa AAA
Saskatchewan AAA Aa1 1 AA
Manitoba AA Aa1 A (high)
Ontario AA- 2 Aa2 AA (low)
Quebec A+ Aa2 A (high)
New Brunswick A+ Aa2 A (high)
Nova Scotia A+ Aa2 A (high)
PEI A Aa2 A (low)
Nfld & Labrador A+ Aa2 A
Sources: Provinces, BMO Capital Markets, S&P, Moody’s, DBRS ( ) = deficit 1 = positive outlook 2 = negative outlook
some reprieve thanks to the weaker currency. Meantime, Quebec’s