Is Wholesale Colocation Causing Market Oversupply? (SlideShare)
Provincial Economic Forecast - TD Bank, N.A. · 2019-06-17 · the downside. Globally, price...
Transcript of Provincial Economic Forecast - TD Bank, N.A. · 2019-06-17 · the downside. Globally, price...
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• Aswehadanticipated,economicgrowthinmostregionshasbeengainingsometractionoflateafterachallengingstarttotheyear.Forthefullyear,growthisexpectedtorunfromalowof0.5%inAlbertaandNewBrunswickto2%inPrinceEdwardIsland.ThesemodestratesarelargelyunchangedfromourMarchforecast.
• Underlyingthissubduedpictureforoutputandspendingissurprisingstrengthinjobmarkets.Evenwithanassumednormalizationinhiringtrendsgoingforward,jobgrowthforecastshavebeenupgradedthisyearineightoftenprov-inces,notablyinOntarioandBritishColumbia.Ongoingresilienceinjobmarkets,alongsidearecentreductioninbor-rowingrates,isexpectedtosupportcontinuedhouseholdspendinggainsfromcoasttocoastovertheforecastperiod.
• B.C.’seconomyandjobmarketarestillexpectedtoadvancethisyeardespiteadeepslowdowninhousingactivity.Welookforstabilizationinhomesalesduringthesecondhalfof2019,withpriceslikelytoreachabottomduring2020.Continuedsolidprospectsfornon-residentialinvestmentshouldprovidesomeoffsettoweaknessontheresidentialside.
• Alberta’seconomyisexpectedtoekeoutminimalexpansionthisyear,beforerecordingaslightaccelerationin2020.Mandatedoilproductioncurtailmentsofarthisyearhasyieldedstrongerbitumenprices.However,businessandhouse-holdspendingremainhamperedbyconcernsaroundmedium-termenergy investment.Likewise, theManitobaandSaskatchewaneconomiesareencounteringgrowth-limitingheadwinds,notablysoftglobalagricultureconditionsandslowingpopulationgrowth.Asthesepressureseasenextyear,growthshouldpickupclosertotrend.
• Ontheheelsofagrowthdownshift sincemid-2018,economic“greenshoots”havebeenevidentof late inOntarioand Quebec. Of the two, Quebec would appear to enjoythegrowthedge,owinginparttofiscalstimulusandstronghousingmomentum.Ontario’s fiscal picture remains chal-lenging,withgovernmentspendingrestraintsettoweighonitsnear-termeconomicperformance.
• Growth in theAtlantic region for this year is largely un-changedfromourMarchview.PEIislikelytochalkupan-othersolidyearforgrowth,whileNewfoundland&Labra-dorrecordsanimprovementfromitstepid2018rate.MoremodestgrowthperformancesareexpectedforNewBruns-wickandNovaScotia.
Economic Growth and Job Markets Diverge in 2019June 17, 2019
Provincial Economic Forecast
Jump to: BC | AB | SK | MB | ON | QC | NB | NS | PE | NL | Forecast Tables
For more details on our national forecast see our Quarterly Economic Forecast
Contributing Authors■ Omar Abdelrahman, Economist | 416-734-2873
■ Rishi Sondhi, Economist | 416-983-8806■ Beata Caranci, Chief Economist | 416-982-8067■ Derek Burleton, Deputy Chief Economist | 416-982-2514
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British ColumbiaWhilerealGDPgrowthinB.C.moderated in2018, theestimatedgainof2.4%outstrippedthenationalaverageforthefifth straight year.A surge innatural gasoutput androbust expansion in residential and non-residential con-structionand transportation&warehousingactivitypro-pelled lastyear’sadvance.Lookingahead,weanticipateafurtherslowdowntoabelow-trendratein2019,largelyonthebackoftherecentslumpinhousingactivity.Providedthathousinggainssometractionin2020–asweexpect–economicgrowthshouldregainsomemomentum.
Theadjustmentunderwayintheprovince’shousingmar-kets to both government policy changes and higher in-terest ratesover thepast fewyearshasbeen sharper andmoreprolongedthanwehadanticipated.Declines inre-saleactivity (Chart1)andaveragepricesaccelerated thisyear,while themarket balance in theGreaterVancouverAreahassunkenwellintobuyer’sterritory.Thatsaid,withmuchofthespeculativefrothhavingbeenremovedfromthemarketandinterestratetrendsrecentlyturningmorefavourable,salesare likelytobeginfirminginthesecondhalfoftheyear.Still,someresidualsoftnessinhomepricesandhomebuildingisexpectedtolingerinto2020.
A key factor that has helped insulate the economy fromthespill-overimpactsofdeclininghousingactivityison-goingresilienceinlabourmarkets.Theprovincemaintainsthecountry’slowestunemploymentrateandahistorically-highcoreageparticipationrate.Byanymeasure,employ-mentinB.C.isgrowingatanunsustainablyrapidclipthisyear,settingthestageforasignificantmoderationin2020.
Meanwhile, prospects for engineering and non-residentialinvestmentremainbright.AsmeasuredbyStatCan’sCapi-talandRepairExpendituresSurvey,B.C.toppedthenation(Chart 2). Large scale projects, including LNG Canada,theassociatedpipelinewillhelp to sustainnon-residentialconstructiongoingforward.Alate-2018surgeinnon-resi-dentialbuildingpermitsfurtherconfirmsthisnarrative.Ad-ditionally, labourmarkettightnessandanabsense inspareproductivecapacity is likely to incentivize investment.Butwhile the outlook for non-residential investment remainsstrongforthemostpart,oneareaofnear-termdownsiderisksurrounds the export sector,which is expected to struggleamidweakconditionsintheforestrysector,aslowingChi-neseeconomy,andgrowingtradetensions.
2018 2019 2020
Real GDP 2.4 1.5 2.0
Nominal GDP 4.7 3.5 4.4
Employment 1.1 3.1 0.8
Unemployment Rate (%) 4.7 4.6 4.7Housing Starts (000's) 40.9 42.1 34.9Existing Home Prices 0.9 -7.9 -0.6Home Sales -24.5 -9.8 8.8
[ Annual average % change, unless otherwise noted ]
British Columbia Economic Forecasts
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Chart 2: B.C. Topped the Country for Growth in 2019 Capital Spending Intentions
Source: Statistics Canada, TD Economics
Capital Expenditures (2019 Intentions), Year/Year % Change
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Source: CREA, TD Economics, Forecast by TD Economics as of June 2019
Quarterly Existing Home Sales, UnitsForecast
Chart 1: B.C.'s Resale Market is Expected to Stabilize
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AlbertaAlberta’s2019growthprospectsweredealtasevereblowlate lastyearbyextremesoftness inheavyoilprices.Thegood news is that the mandated oil output curtailmenthas secured a sustained improvement inheavy oil prices(Chart1).Still, investmentandspendingintheprovincehavebeenslowtorespond(Chart2).Weanticipateamod-eratereboundinrealGDPgrowthin2020,butthosegainswilllikelybenarrowlyconcentratedinoiloutput,belyingcontinuedweaknessinthebroadereconomy.
Despite an easing in oil output restrictions in recentmonths, near-term risks surrounding prices are tilted tothedownside.Globally,pricebenchmarkshaveweakenedsinceMay, reflecting an escalation in trade tensions andoversupply concerns. In response,wehavenudgeddownour2019and2020WTIpriceoutlook.WithintheAlber-taoilpatch,elevatedstockpilesofcrudehavebeenslowtoworkdownamidanunexpectedsofteninginexportsandcrude-by-rail shipments inQ1.Fortunately,exportshaveshownsignsofstrengthening,bodingwellforarebalanc-ingheadinginto2020.
The environment for oilpatch investment is likely to re-mainchallenging.Furtherregulatorysetbacksandadelaytothestart-upofoperationsonLine3hasonlycloudedtheoutlookfurther.Petroleumandchemicalmanufactur-ingremainsoneareaofexpansionandprovidesopportuni-tiesforlonger-termdiversification.
Theprovince’s labourmarketshaveweathered the recentgrowthslumpbetterthanexpected.Atthesametime,thisyear’ssteadyemploymentpicturesuggeststhatanyreboundontapnextyearwillbemodestatbest.Inturn,consumersarelikelytoremaincautioustospend,whiletheprovince’shousingmarketscontinuetostruggleamidcontinuedex-cesssupply.Ontheplusside,abouncebackinhomeresaleactivitythisspringprovidessomeearlyhintsthathousingdemandisbeginningtoturnthecorner.
The newly-elected governmentwill table its first budgetin theautumn,witha cut to corporate taxes alreadyan-nounced.However,onechallengingtaskwillbe tomakegoodonitsgoaltoslaytheestimated$6.9billionprovin-cialdeficitbyFY2022-23,ayearearlierthanpromisedbythepreviousgovernment.Afreezetooperatingexpensesmaybeon the table since itwas implied in thegovern-ment’selectionplatform.
2018 2019 2020
Real GDP 2.0 0.5 2.1
Nominal GDP 3.5 1.9 4.8
Employment 1.9 0.6 1.2
Unemployment Rate (%) 6.6 6.8 6.7
Housing Starts (000's) 26.3 23.4 25.7
Existing Home Prices -2.4 -3.3 0.0
Home Sales -7.2 2.3 10.0
[ Annual average % change, unless otherwise noted ]
Alberta Economic Forecasts
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Chart 1: Curtailment Supported a Rebound in WCS Prices, but Modest Downside Risk Remains
WCS-WTI SpreadWTIWCS
Source: Bloomberg, TD Economics, Forecast by TD Economics as of June 2019
US$/barrel ForecastCurtailment Plan Announced
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Chart 2: Capital Spending has Remained Virtually Flat in Alberta Since 2016
Capital Expenditures - All Industries
Capital Expenditures - Mining, Quarrying,and Oil & Gas Extraction
Source: Statistics Canada, TD Economics*Estimates for 2018 are preliminary. Data for 2019 represents spending intentions.
Millions C$* 2019 Intentions
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SaskatchewanAfterturninginadecentreboundin2017,growthinSas-katchewan’seconomymoderatedtoanestimated1.6%pacein2018.Economicgrowthisexpectedtodownshiftfurtherthisyear,beforegainingsomemodesttractionin2020.
Improvedheavyoilpricing so far this yearhasbeen sup-portingcashflowsintheoilpatch,thoughrecentdeclinesin global benchmarks partly on the back of tariffworrieshavemutedsomeofthebenefits.Theprovincehasnotex-perienced the sameproductionconstraintsas itsneighbortothewest.Thatsaid,outputandinvestmentprospectswillcontinuetobe impededbyelevateduncertainty,especiallysurroundingmarketaccess.
Theprovince’sagriculturalsectorischallengedbyanumberofheadwinds ranging fromweak croppricing tonew re-strictionsoncanolaseedexportsintoChina(Chart1).Lastyear,asurgeinfarm-relatedexpensesincludingfeed,debt,andenergycostsdrovea42%dropinnetincome.Expensegrowthisexpectedtoleveloffthisyear,butnetincomewilllikely remain below its five-year average due to expectedsoftness in farm cash receipts. While crop rotation awayfromcanolacanhelptomitigatethedownsideimpactsonfarmrevenue,therearelimitstothedegreetowhichrotationcanbeutilized.
Elsewhere,theuraniumindustrycontinuestobechallengedbyweakglobalmarketconditionsaswellastheimpactoftherecentindefiniteclosureoftheMcArthurRivermine.Incontrast,thepotashindustryisenjoyingsolidmomentumthisyear,withproductionupmorethan7%(ytd)andpricesexpectedtoremainsteady-to-slightlyhigher.
An additional bright spot has been the province’s labourmarkets.Jobgrowthisat2%(ytd),andtheunemploymentratehasaveraged5.4%sofarthisyear–asubstantial im-provementrelativetothelastthreeyears(Chart2).Inturn,thisimprovedemploymentsituation,aswellasimprovedaf-fordability,isexpectedtosupportareboundinhomesalesinthecomingquarters.Thatsaid,homebuildingisstillex-pectedtoremainweakgivencontinuedelevatedsupply.
TheSaskatchewan government plans to eliminate a $380milliondeficitinthecurrentyear,agoalthatcouldbechal-lenginggivensomeoftheunanticipatedsoftnessthisyearincommoditymarkets.Ontheplusside,theProvince’sstill-lownetdebt-to-GDPratiocontinuestoprovidemoreflex-ibilitythanmostofitsprovincialcounterparts.
2018 2019 2020
Real GDP 1.5 0.8 1.2
Nominal GDP 3.2 2.1 3.8
Employment 0.5 1.4 0.7
Unemployment Rate (%) 6.1 5.5 5.8
Housing Starts (000's) 3.6 2.3 4.1
Existing Home Prices -2.3 -2.0 -0.2
Home Sales -7.1 7.9 6.9
[ Annual average % change, unless otherwise noted ]
Saskatchewan Economic Forecasts
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Saskatchewan Manitoba Alberta Canada
Chart 1: Saskatchewan's Agricultural Sector is Exposed to the Subdued Canola Outlook
Canola Cash Receipts as a Percentage of Total Farm CashReceipts (2018)Canola Seed Exports to China as a Percentage of Total AgricultureExports to All Countries (2018)*
Source: Industry Canada, Statistics Canada, TD Economics*Data is for domestic exports and excludes support activities, forestry, floriculture, and aquaculture products
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Chart 2: Saskatchewan's Labour Market Showing Early Signs of Improvment
Employment Growth (RHS)Unemployment Rate (LHS)
Source: Statistics Canada, TD Economics. Last Data Point May, 2019
Unemployment Rate, %, 3-mma Year/Year Employment Growth, %
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ManitobaAfterarobustturnoutofaround3%in2017,Manitoba’seconomic growth moderated to about half that rate in2018. Bothgainsingoodsandservicesproductionweresofter,withtheformerweigheddownbyminingindustryclosures.Meanwhile, services output eased to its slowestpacesinceatleast1998,clippedbysofterretailspending.Onthebrightside,constructionoutputcontinuedtoex-pand rapidly, boostedby on-goingworkon theKeeyaskpowerstationandtheLine3Replacementproject.
However,wedon’tanticipatethesamecontributionfromtheseconstructionprojectsmovingforward.WorkontheKeeyask project shouldwind down through 2020,whileactivity on theCanadian portion of theLine 3 pipelineprojectwasnearingcompletionthisspring.Thesearemajorfactorsunderpinningourviewthatgrowthwilleaseagainin 2019.However,Manitoba’s economy is set to recoversomewhat in2020,partlyon thebackof amorebenigninterestrateenvironmentthanexpectedafewmonthsagoandanupturnintheeconomicfortunesofotherprovinces.
Despiteapull-backinborrowingratesinrecentmonths,consumerspendingislikelyinforanothersubduedyearin2019amidslowingpopulationgrowthandmodestgrowthinrealwages.What’smore,whiletheprovincehasaddedjobssofarin2019,allofthegainshavebeeninpart-timework.However,thePSTwillbecutby1pptonJuly1st,providingsomeoffsettothesefactors.
Slowingpopulationgrowthcombinedwithpastratehikesshouldkeepalidonhomesalesincomingmonths.How-ever,demandwilllikelyseesomesupportinlate2019fromtheFirstTimeHomebuyersIncentive.Thisprogramwilllikelybewellreceivedamidstill-challengingaffordabilityconditions.Onthesupplyside,fallingbuildingintentionspointtosofterhomebuildinggoingforward.
After a strong performance in 2018, exports dropped inthefirstquarter,weigheddownbyloweragriculturalship-ments.Lookingahead,weexpectinternationalexportstogrowataslowerpacefortheremainderof2019and2020,alongsideaneasingexpansionstateside.GrowingtensionsbetweenCanadaandChinahasleftManitobainthecross-hairs,withfallingpricesforcanolacropsdepressingfarmreceiptsandnominalGDPgrowth.
2018 2019 2020
Real GDP 1.4 1.3 1.7
Nominal GDP 3.2 3.0 4.1
Employment 0.6 1.4 0.7
Unemployment Rate (%) 6.0 5.4 5.4
Housing Starts (000's) 7.4 6.6 5.5
Existing Home Prices 1.2 1.2 3.9
Home Sales -5.9 2.7 3.0
Manitoba Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Chart 2: Shipments of Agricultural Products to China Slowing in the Wake of Import Bans
Source: Statistics Canada, TD Economics
Exports of Farm, Fishing and Intermediate Food Products to China, Year-to-Date, SA, $ Millions
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Chart 1: Weak Retail Spending in Manitoba
Source: Statistics Canada, TD Economics
Real Retail Sales, % Change, 3-qma
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OntarioWeaknessinlate2018lookstohavelingeredintothefirstquarter, as Ontario’s economy likely recorded next to nogrowth.Thisweakstarttotheyearleavesgrowthontracktoslowsignificantlyin2019followinglastyear’srespectable2.2%outturn.Thatsaid,thefirstquarterdetailswereproba-blybetterthantheheadline,asconsumerspendingstrength-ened andmachinery and equipment investment increasedsharply.Thisfitswithourviewthatthefirstquarterwasthenadirforgrowth,withsomemodestaccelerationlikelyinthecardsovertherestof2019.
Inordertoaddressitssizeabledeficit,theprovincialgovern-menthasoutlinedaplan to reduce spendinggrowthwellbelowitsrecenttrendincomingyears.Thisloomingfiscalrestraintisexpectedtoexertadragongrowth,particularlyin2020.However,totheextentthatOntario’sdeficitanddebtpositonscanbeputonamoresustainablepath,theprovin-cialeconomywillbenefitoverthelongerhaul.
The recent escalation in trade policy uncertainty betweentheUS andChina represents a growing risk toOntario’seconomythroughpotentialnegativeimpactsonUSgrowthandoverallconfidence.It’snotallbadnewsforbusinesseshowever,asU.S.tariffsonsteelandaluminumproductswererecentlydropped.Meanwhile, thedeal struckbetweentheU.S.andMexicowhichavoidsAmerican tariffsonMexi-canproductsshouldsupportnear-termsentimentasitim-pliesfewerpotentialroadblockstowardsaratificationoftheCUSMAtradeagreement.
Alsoonthebrighterside,Ontario’slabourmarketisonfire,with137.5kjobsaddedthisyear-eclipsing2018’sfull-yeartally.Strong jobgrowthhaskeptconsumerspendingrun-ning at amodest clip in recent quarters, helping ease thestingofpast ratehikes.Peeringahead,while theoutsizedemployment gains are likely to moderate in the comingquarters,conditionsinjobmarketsareexpectedtoremainstrongandsupportivetofurtherspendinggains.
Afteranadjustment inhousingactivity thathasextendedfornearly2years,‘greenshoots’haverecentlybeenobservedinOntario’shousingmarket,underpinnedbyrapidpopula-tiongrowth,fallingmortgagerates,andhealthylabourmar-kets.Provincialsaleshaveclimbedin3ofthepast4months,withfurthergainslikelymovingforwardasdemandbenefitsfromhealthyfundamentals.
2018 2019 2020
Real GDP 2.2 1.3 1.4
Nominal GDP 3.4 3.6 3.6
Employment 1.6 2.6 0.8
Unemployment Rate (%) 5.6 5.7 5.7
Housing Starts (000's) 79.4 69.4 73.9
Existing Home Prices -1.7 4.7 4.6
Home Sales -13.3 7.5 8.0
Ontario Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Chart 1: Ontario's Job Market is on Fire
Source: Statistics Canada, TD Economics
Year-to-Date Job Growth, Persons, 000s
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New Spending Plan
Previous Spending Plan
Source: Provincial Governments, TD Economics
Provincial Government Program Spending Growth, %
Chart 2: Provincial Fiscal Restraint to Weigh on Growth
Forecast
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QuébecQuebec has not been immune to the softness that hasgrippedprovincialeconomiessincelatelastyear.GrowthinQuebec (+1.5%)managed to outperform the nationalaverageinthefourthquarterof2018,butthedetailsweredecidedlysofter.What’smore,thepaceofexpansionlikelyslowedfurtherintheopeningquarterof2019,asnettradetookabigbiteoutofgrowth.Thissub-parstart to2019underpinsourviewthateconomicgrowthwilleaseto1.7%this year – still a fairly strong, above-trend showing andnotablyfasterthanwhatisexpectedforthecountryoverall.
Consumerspendingwassofttoendlastyear.Pastincreas-esininterestrateswerepartlytoblame,withrate-sensitivemotorvehiclesalesdraggingdowntheheadline.However,householdfinancesareinrelativelygoodshape,consumerconfidence is elevated, and labour markets are booming.Indeed,fromJanuarytoMay,nearly45k(mostlyfull-time)jobswerecreated intheprovince,carvingtheunemploy-mentratetoanall-timelow.Theseconditions,alongsideamorerecentpull-backinborrowingcosts,fueledaprobablepickupinfirstquarterspendinggrowth.And,thesesamefactors should continue buoying household consumptionmovingforward.
Againstwhatwasahighlyuncertainbackdropatthetime,businessinvestmenttookastepbacktoclose2018.How-ever, this weakness probably turned around in the firstquarter. Looking ahead, non-residential spending shouldcontinuetorise,boostedbyfederalandprovincialacceler-ateddepreciationmeasuresandarelativelyhealthydomes-ticbackdrop.Ontheexternalfront,therecentlyliftedU.S.tariffsonsteelandaluminumproductswilllikelyenhancewhat is already elevated business confidence, particularlyas aluminumproducts are an important export forQue-bec.However,overallexportgrowthshouldeasealongsideaslowingU.S.economy.What’smore,tradeskirmishesbe-tweentheU.S.andChinawilllikelydentsentiment.
Measures contained in provincial government’s 2019/20budgetaregrowthsupportive,combiningmodesttaxrelieffor householdswith ramped up program and infrastruc-turespending.Moreover,policiestoenhancetheintegra-tion of immigrants and temporary foreign workers wereintroducedintandemwithincentivesforolderworkerstostayinthelabourforce.Thesemeasureswillbepositiveforgrowthin2019and2020.
2018 2019 2020
Real GDP 2.1 1.7 1.7
Nominal GDP 4.2 4.0 3.9
Employment 0.9 1.5 0.6
Unemployment Rate (%) 5.4 5.2 5.5
Housing Starts (000's) 46.9 46.9 43.8
Existing Home Prices 5.3 4.8 3.5
Home Sales 4.8 7.6 5.7
Québec Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Chart 1: Healthy Labour Markets Buoying Consumer Spirits in Quebec
Source: Conference Board of Canada, TD Economics
Consumer Confidence, Index, 2014=100, 3-mma
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Chart 2: Ramped Up Government Spending Plans are Growth Supportive
New GovernmentPrior Government
Source: Provincial Governments, TD Economics
Program Spending Growth, % Forecast
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New BrunswickAfteranimpressiverunofabove-trendgrowthin2016and2017,NewBrunswick’seconomycametoavirtualstand-stilllastyear.Transitoryfactorsintheprovince’smanufac-turingsectorweighedheavilyontheprovince’sexpansiontoendlastyear.Thisweakhandoff,adropinhomebuildingso far this year, andamore subduedoutlook for exportshaveputNewBrunswickontracktoadvancebyonly0.5%in2019, tiedfor lastplaceontheprovincial leaderboard.Weexpect realGDPgains to returncloser to trend-likeconditionsin2020,butdemographicchallengeswillcon-tinuetocapanyfurtherupside.
NewBrunswick’smanufacturingsalesandexportstookahitinlate2018onthebackofmaintenanceandanexplo-sionatitslargeoilrefinery(Chart1).Thesectormanagedtostagearecoveryfromthesesetbacksinthefirstquarteroftheyear,butonlypartially.Whilefurtherrecoveryislikelyoverthesecondhalfoftheyear,theimprovementwillbemutedbyweakness in theglobalmarket forkey forestryandwoodproducts industry,whereactivity isbeingheldbackbylowlumberprices,softdemand,andlingeringtar-iffs.Therecently implementedCETAandCPTPPtradeagreementsprovideasignificantmedium-termgrowthop-portunity,particularlywithin theagricultureand forestrybusinesses.Alsoprovidingsomeoffsettotemporaryweak-nesses in the province’s goods sectors is a rising servicessector,withseverallargecorporationschoosingtoestablishservicecentersandofficesintheprovince’scities.
Meanwhile,aone recentbright spot isNewBrunswick’slabourmarket,whichhasbeen showing signsoffirmingfollowinglastyear’slacklusterperformance.Jobgrowthisup0.7%(ytdy/y),supportedbysolidgrowthintheprov-ince’s labour force. New Brunswick continues to benefitfromarisingpopulationbaseonthebackofrecord-highinternationalimmigrationintotheprovince.Still,negativeinterprovincialmigrationandalownaturalratecontinuetoactasheadwindstotheprovince’slonger-termgrowthpotential.
Whilehomebuilding in theprovincehasbeenweak, theresalemarkethasbeenstrongsincethesecondhalfoflastyear.(Chart2)Indeed,existinghomesalesareupanote-worthy15%relativeto2017.Inadditiontorobustimmi-gration,muchofthisisduetomorefavourableborrowingratesandsupportiveaffordabilityconditions.
2018 2019 2020
Real GDP 0.1 0.5 0.9
Nominal GDP 1.0 2.1 2.9
Employment 0.3 0.8 -0.1
Unemployment Rate (%) 8.0 7.9 8.1
Housing Starts (000's) 2.3 1.8 1.9
Existing Home Prices 5.9 3.9 5.6
Home Sales 1.5 6.8 4.7
New Brunswick Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
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Chart 2: New Brunswick's Resale Market Has Lately Been Strong
Source: CREA, TD Economics
Existing Home Sales, Units
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Nominal Exports
Nominal Manufacturing Shipments
Source: Statistics Canada, TD Economics
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Chart 1: Partial Recovery Ongoing in New Brunswick's Manufacturing Shipments and Exports
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Nova ScotiaOnanindustrybasis,NovaScotia’seconomyexpandedata1.2%ratein2018,inlinewithourexpectations.Thiswasarespectableoutturnfortheprovince,withgrowthclockinginabovethepost-recessionaverage.Theminingsectorsup-portedgrowthlastyear,asproductionatthenewTuoquoygoldminerampedup.Atthesametime,oilandgaspro-ductionmoderatedandretailspendingwassoft.
Theeconomygainedsomesteamintheearlypartof2019.Indeed,nearly10kjobswerecreatedthroughMay,mark-ingthebestsuchperformancesince1994.Thisshowedupinconsumer spending,with inflation-adjusted retail salesbouncingback in thefirstquarter. In fact, salesvolumeschalkeduptheirbestquarterforgrowthsince2015inQ1.
Abettingthispositivemomentumisthe2019/20provin-cialbudget,whichbeefedupprogramandcapitalspendingforthisfiscalyear.Thegovernmentalsointroducedanewacceleratedcapitalcostallowance,whichshouldliftbusi-nessinvestmentgoingforward.Furthersupporttoinvest-mentshouldcomefromthedecommissioningoftheSableandDeepPanukenaturalgasfields.Meanwhile,medium-termspendingwillbejoltedbytheconstructionoftwonewcoastguardpatrolshipsinHalifax.
Populationgrowthmatchedamulti-decadehighinthefirstquarterand,morebroadly,hasbeentrendinghighersince2016.Thesegainshavebeenfueledmostlybeinternation-almigration,which likelyhas somestayingpowerowingto rising federal immigration targets. Robust populationgrowthhassparkedgainsinhomesalesandhomebuilding,withtheformerrisingsofarthisyearandthelatterremain-ingelevated.NovaScotia’stighthousingmarketispoisedtobenefitfromthefederalgovernment’sFirst-timeHomeBuyersIncentive,particularlyasprevailinghomepriceandincomelevelsfallwellwithinprogramthresholds.
Yet,despiteallthesepositives,weremainhesitanttomarkupourgrowthforecastforthisyearsignificantly.Thisisbe-causeheightenedtradeuncertaintyshoulddampentheex-pansionsintheU.S.andChina,thusweighingonexports.Moderatinggrowth inChina isparticularly impactful,asthe share ofNovaScotia’s exports shipped toChinahasrisensharplysince2014.However, shouldthe large-scaleGoldboroLNGproject get a green light (a final invest-mentdecisionisduesometimethisyear),ourforecastswillreceiveasignificantupgrade.
2018 2019 2020
Real GDP 1.2 1.1 1.2
Nominal GDP 2.6 3.0 3.1
Employment 1.5 2.2 -0.1
Unemployment Rate (%) 7.6 6.9 7.4
Housing Starts (000's) 4.9 4.0 4.0
Existing Home Prices 3.2 6.7 3.9
Home Sales 5.3 6.1 5.5
Nova Scotia Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2015 2016 2017 2018 2019
Source: Statistics Canada, TD Economics
Employment, Year/Year % Change, 3-mma
Chart 1: Employment Expanding Rapidly in Nova Scotia
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2008 2018
Source: Statistics Canada, TD Economics
Share of Merchandise Exports Shipped to China, %
Chart 2: Nova Scotia Levered to Slowing Chinese Economy
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Prince Edward IslandPEI’s economy has benefitted tremendously from multi-decadehighsinpopulationgrowth.Internationalmigrationhasfueledthisstrength,withrampedupfederalimmigra-tion targetshelpingnewcomersflock toPEI.Historically,the provincehashad some trouble retaining these immi-grants.However, there is some evidence that thismaybeturning around, with the rate of newcomers leaving forotherprovincesslowingsince2016.
Robustpopulationgrowth–andtheattendantboosttodo-mesticactivity–coupledwithsturdyeconomicconditionsstateside propelled a sizzling 2.6% outturn for industry-based GDP in 2018 (we expect that expenditure-basedGDP nearly matched this pace last year). This strengthfounditswaytolabourmarkets,withemploymentup3.0%and theunemployment rate falling toa record low.Thesefirmtrendshavebeensustainedsofarin2019,withpayrollemploymentupsolidlyinthefirstquarter.Meanwhile,othersectorsarealsoperformingwell,withmanufacturingship-mentshigheryear-over-year,inflation-adjustedretailspend-ingadvancingatastrongclip,governmentprogramssup-portingariseinhomebuilding,andwholesaletradesurging.What’smore,tourismactivityremainedhealthyinthefirstquarter,withovernightstaysadvancingatadouble-digitan-nualpace.Thispositivemomentumhas ledustoupgradeourPEIforecastfor2019.
However,we still expect a slowerpaceofgrowth inboth2019and2020relativetotheoutsizedperformancesofre-centyears.Firstly,withlabourmarketsbecomingtighter,itwillbehardforjobgrowthtomatch2018’storridperfor-mance.Softeremploymentgrowthshouldkeepalidoncon-sumerspending.Meanwhile,pastratehikescombinedwithstronghomepricegrowthinrecentyearshaschippedawayataffordability,whichisexpectedtoputadamperonnear-termhomesalesactivity.Ontheexportside,boththeUSandglobaleconomieshavebeenslowing,whichhasnega-tiveimplicationsformanufacturingandtourism.Finally,theprovince’slatestCapitalBudgetpointstosomemoderationininfrastructurespendingbeyondthisfiscalyear.
The newly elected PC government’s platform contains amodest mix of tax cuts and spending initiatives. Bigger-ticket promises includepledges to cut small business andpersonalincometaxes.TheProvinceissportingits3rdlarg-estsurplusinnearly40years,settingthetablenicelyforthenewgovernmenttoallocatefundingtoitskeypriorities.
2018 2019 2020
Real GDP 2.5 2.0 1.3
Nominal GDP 4.3 3.9 3.3
Employment 3.0 0.6 0.1
Unemployment Rate (%) 9.4 9.6 9.8
Housing Starts (000's) 1.0 0.7 1.1
Existing Home Prices 4.5 9.4 4.6
Home Sales -4.5 -8.7 5.2
P.E.I. Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
0
20
40
60
80
100
120
140
160
180
FY 2019/20 FY 2020/21 FY 2021/22
Chart 2: PEI Government's Capital Spending Poised to Slow After this Fiscal Year
Source: PEI Government, TD Economics
Government Capital Expenditures, $ Millions
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Chart 1: Robust Population Growth Boosting Activity in PEI
Source: Statistics Canada, TD Economics
Population, Year/Year % Change
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Newfoundland & LabradorAramp-upinoilproduction,aresumptioninironorepro-duction,andthestartofconstructiononanumberofsmall-er-scale capitalprojects should support amodestbounce-backinNewfoundland&Labrador’seconomythisyear.In2020,growthisexpectedtoslipbacktoamoremodestrateastheimpactofthisyear’sconstructionstrengthfadesanddemographicscontinuetoweighonlabourforcegrowth.
Anoutlook for increasedcommodityproduction thisyearis instrumental in driving near-termgains in exports andmanufacturing activity. For instance, oil production is up3.5%year-to-datey/y,andisexpectedtorisefurtherwitharampupattheHiberniaandHebronoilfields.Theresump-tionofironoreproductionafteratwomonthstrikeattheIronOreCompanyofCanadain2018shouldalsolendahelpinghandtoexportvolumesamidatightglobalmarket.
Afterasubdued2018,thenon-residentialconstructionsec-torisexpectedtobeamajorcontributortogrowth.Capi-talspendingisprojectedtoreceiveaboostfromtheWestWhiteRosefieldexpansionandVoisey’sBayundergroundmine expansion.Other support could come frompre-de-velopmentspendingontheBayDuNordproject,ifsanc-tioned,inadditiontoincreasedoffshoreexplorationactivity.
In contrast, consumer spending is likely to remain tepid.Retail sales are up amodest 2% (ytd y/y) so far in 2019,implyingflatvolumesgrowth.Thiscautionisdespitesignsofanimprovinglabourmarket,wherejobandwagegrowthhaverecentlysurprisedontheupside(Chart1).Incontrast,housingdemandmaybestartingtorespondtothestron-gerjobconditionsaswellasarecentpull-backinborrowingrates.Resaleactivityintheprovincewasupmorethan7%inQ1relativetothelastquarterof2018(Chart2).Theim-pactofthenewfederalhousingmeasures,notablytheFirstTimeHomeBuyer’sinitiative,isalsolikelytocontributetoamodestuptick insales thisyear.While thesesignalsarepositive, ongoing demographic pressures will continue tolimittheupsidepotentialintheprovince’shousingmarketsoverthemediumterm.
Thisyear,theprovincialbudgetisexpectedtomovebacktoabalancedposition,owinglargelytoafederal$2.5billionpaymentrelatedtotheAtlanticAccord.Giventhatthispay-mentisonlyone-time(front-loaded),itdoeslittletoaddressa$700millionstructuraldeficit,agapthatthegovernmentplanstoeliminatebyFY2022-23.
2018 2019 2020
Real GDP -2.7 1.5 1.1
Nominal GDP 0.1 4.0 3.6
Employment 0.4 1.5 -0.7
Unemployment Rate (%) 13.8 12.1 12.5
Housing Starts (000's) 1.5 0.7 1.0
Existing Home Prices -1.4 -2.8 -1.1
Home Sales -5.1 8.7 3.7
NFLD & Labrador Economic Forecasts[ Annual average % change, unless otherwise noted ]
Source: Statistics Canada, CMHC, CREA, Forecast by TD Economics
-8
-6
-4
-2
0
2
4
10
11
12
13
14
15
16
Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18 May-19
Chart 1: Newfoundland & Labrador's Labour Markets Have Recently Surprised on the Upside
Employment Growth (RHS)
Unemployment Rate (LHS)
Source: Statistics Canada, TD Economics
Unemployment Rate, %, 3-mma Year/Year % Change
25
27
29
31
33
35
37
39
41
-15
-10
-5
0
5
10
15
20
25
30
Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19
Existing Home Sales (LHS)
Sales/Listings Ratio
Source: CREA, TD Economics
Month/Month % Change Sales/Listings Ratio
Chart 2: Newfoundland & Labrador's Resale Market was Decent in Q1 (but Downside Risk Remains)
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Provincial Economic Forecasts
2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020
National 1.9 1.3 1.7 3.6 3.3 4.0 1.3 2.0 0.7 5.8 5.7 5.9 214 198 196 -3.5 -2.0 3.2
Newfoundland & Labrador -2.7 1.5 1.1 0.1 4.0 3.6 0.4 1.5 -0.7 13.8 12.1 12.5 1.5 0.7 1.0 -1.4 -2.8 -1.1
Prince Edward Island 2.5 2.0 1.3 4.3 3.9 3.3 3.0 0.6 0.1 9.4 9.6 9.8 1.0 0.7 1.1 4.5 9.4 4.6
Nova Scotia 1.2 1.1 1.2 2.6 3.0 3.1 1.5 2.2 -0.1 7.6 6.9 7.4 4.9 4.0 4.0 3.2 6.7 3.9
New Brunswick 0.1 0.5 0.9 1.0 2.1 2.9 0.3 0.8 -0.1 8.0 7.9 8.1 2.3 1.8 1.9 5.9 3.9 5.6
Québec 2.1 1.7 1.7 4.2 4.0 3.9 0.9 1.5 0.6 5.4 5.2 5.5 46.9 46.9 43.8 5.3 4.8 3.5
Ontario 2.2 1.3 1.4 3.4 3.6 3.6 1.6 2.6 0.8 5.6 5.7 5.7 79.4 69.4 73.9 -1.7 4.7 4.6
Manitoba 1.4 1.3 1.7 3.2 3.0 4.1 0.6 1.4 0.7 6.0 5.4 5.4 7.4 6.6 5.5 1.2 1.2 3.9
Saskatchewan 1.5 0.8 1.2 3.2 2.1 3.8 0.5 1.4 0.7 6.1 5.5 5.8 3.6 2.3 4.1 -2.3 -2.0 -0.2
Alberta 2.0 0.5 2.1 3.5 1.9 4.8 1.9 0.6 1.2 6.6 6.8 6.7 26.3 23.4 25.7 -2.4 -3.3 0.0
British Columbia 2.4 1.5 2.0 4.7 3.5 4.4 1.1 3.1 0.8 4.7 4.6 4.7 40.9 42.1 34.9 0.9 -7.9 -0.6
Source: CREA, CMHC, Statistics Canada, TD Economics. Forecasts by TD Economics as at June 2019.
Provincial Economic Forecasts
Real GDP
(% Chg.)
Nominal GDP
(% Chg.)
Employment
(% Chg.)
Unemployment Rate
(average, %)
Housing Starts
(Thousands)
Home Prices
(% Chg.)
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