Our provincial forecasts are more rooted than ever before in the strength of our conviction that the gap between growth in the more heavily resource based provinces and central Canada will narrow during 2007-08.
First up is fiscal policy, which has tilted in favour of stimulating central Canada with the recent federal budget funding a federal government spending surge in Ontario. Some of this will begin to flow in 2007, while much of it will carry on for many years. On the heels of Quebec’s election on March 26, six other provinces and the feds are heading towards elections either this year or next (all but British
Columbia, Nova Scotia and New Brunswick).
Despite higher federal transfers that are likely to be put towards tax relief, Quebec actually gets unfairly criticized for overspending when, in fact, its rate of growth in program spending has been the second weakest of all the provinces in the past four years. British Columbia opted for consumer-oriented tax relief in its budget and has had the weakest spending growth of all provinces. The remaining question mark is Ontario’s government, which appears to have exercised some spending restraint but may be lowballing revenues to leave room for pre-election off-budget spending.
Second is the investment picture where the gap between the west and central Canada is likely to become more balanced. According to Statistics Canada’s
recent investment intentions survey, the country is in the middle of an investment
surge, albeit one that is moderating and with the public sector doing much
of the heavy lifting. This survey was done before recent budgetary measures
that add to private-sector investment incentives, particularly for manufacturers
that now face two-year write-offs on equipment spending.
Third, we firmly believe that central Canada’s manufacturing base will stabilize and that its export prospects will improve. Strong global growth, overblown concerns about the health of the U.S. economy, an expected depreciation in the currency and sustained lower-than-peak commodity input prices should all gradually turn central Canada’s manufacturing base around except for labour-intensive
sectors facing a China-related market share battle for U.S. imports. A cooling
in U.S. dollar-denominated commodity prices will still leave room for attractive
exploration, appraisal and development activity across the west.
Fourth, despite concerns about the phasing out of accelerated depreciation on oil sands projects, the impact won’t be felt for many years, if at all, given current project commitments. The near-term focus remains on those factors pointing to moderately weaker growth prospects in the energy-rich provinces — cooler
commodity prices causing weaker provincial royalties and surpluses, softer profit
growth and less upward pressure on wages. For the prairie provinces, attractive
mining and hydro prospects, a decent early read on crop conditions and farm
subsidies in the recent federal budget should further assist near-term growth.
For our latest macroeconomic and financial market forecast report, go to: www.rbc.com/economics/market/pdf/fcst.pdf
Source: "Financial Markets Monthly", Economics Departnment, RBC Financial Group.
Read more about the economics of real estate in Ontario and the GTA
For more information please contact A. Mark Argentino
A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1