Provinces to Struggle Under the Weight of Higher Rates: TD Provincial Economic Forecast

After growing by a forecast 3.5 per cent in 2022, Canada’s GDP growth is expected to slow to 0.7 per cent next year and to 0.4 per cent in 2024, according to a report by TD Economics.

“The Bank of Canada has taken their policy rate even higher than we had assumed in September. This will force a growing financial squeeze on households, creating the conditions for consumer-led slowdowns in economic growth across most provinces. And, although job markets continue to display notable resilience as the year draws to a close, a weaker economic backdrop should force provincial unemployment rates higher in coming months,” said the bank’s Provincial Economic Forecast.

“The Prairie provinces are expected to outperform for the second straight year in 2023. An assumed rise in agricultural production owing to this year’s bumper harvest should support output in the region. At the same time, oil and natural gas prices should remain elevated, adding another tailwind to the region. On the flipside, relatively large downgrades are incorporated in B.C. and Ontario, in part reflecting further near-term downside for housing markets. However, we think housing should begin to stabilize early next year as bond yields grind lower.

“Households in Ontario, B.C. (and to a lesser extent, Alberta) are also carrying relatively large debt burdens and should therefore be the most sensitive to higher borrowing costs. In contrast, households in the Atlantic Region and Quebec are more protected through their lower debt burdens.”

The report said consumers in several provinces, particularly Newfoundland and Labrador, Quebec, Alberta, and B.C. are poised to benefit from federal and provincial government support measures, including through so-called “inflation relief” cheques. This will help to offset some of the effect of higher interest rates and rising food costs on household budgets.

“Next year’s projected slowdowns also reflect a softer backdrop for global growth. Downbeat prospects in Europe should impact exporters in the Atlantic Region, Ontario, and Quebec. Meanwhile, soft U.S. economic growth will hurt shipments coast-to-coast,” it said.

“Inflation has eased in every province since June alongside falling oil prices. Next year, we see it grinding lower from coast-to-coast amid healing supply chains and less intense energy inflation. That said, price pressure should remain relatively elevated in B.C. and Ontario – two provinces with large service sectors where inflation tends to be stickier.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)