The sudden collapse in oil prices has significantly altered the economic landscape in Canada and around the world. While some provinces will be negatively impacted, Ontario joins Manitoba and British Columbia as economic growth leaders this year, according to The Conference Board of Canada's Provincial Outlook: Winter 2015.
"Ontario, with its minor exposure to the oil and gas extraction sector, is expected to receive a significant economic boost in the short term," said Marie-Christine Bernard, Associate Director, Provincial Forecast. "Ontario's economy is projected to grow by 2.9% this year, bolstered by strong exports and consumer spending – the first year since 2002 in which economic growth in Ontario outpaces the national average of 1.9%."
Consumer confidence is likely to increase as Ontario households could have up to CAN$1000 more in discretionary income in 2015, as a result of prices at the pump. While Ontarians will likely save some of it or pay down existing debt, much of it is expected to be spent on goods and services, providing a boost for real consumer spending in the province.
Ontario's exporters will continue to benefit from increased demand from a healthy U.S. economy, which is set to grow by 3.2% in 2015. This, coupled with the combination of low oil prices, the Bank of Canada's recent interest rate cut, and a weaker Canadian dollar should render Ontario's products more competitive, boosting exports to south of the border.
For most provinces, growing public debt and fiscal deficits will remain a challenge this year. Federal and provincial government revenues will feel the squeeze from reduced nominal GDP growth. Resource-dependent provinces like Alberta and Newfoundland and Labrador will also be forced to deal with substantially lower-than-expected resource royalty revenues. As governments work to control rising deficits, a new round of expenditure control is expected.
The sharp decline in capital expenditures in the oil industry will dampen the economic forecast for Alberta, Saskatchewan, and Newfoundland and Labrador.
"The slowdown in Alberta's energy sector will have far reaching consequences as many of the workers who flew in and out of the province for oil and construction work may now be unemployed," added Bernard. "It is estimated that US$374 million in income was generated in Atlantic Canada from commuting workers."
With the exception of Newfoundland and Labrador, the economic outlook is improving for Atlantic Canada. After some difficult times in the resource and manufacturing sectors, Nova Scotia and New Brunswick are expected to finally see more solid economic growth.
The downturn in oil producing provinces is expected to be relatively short lived as prices are expected to rise gradually as the global oil glut eases and global demand improves later this year and in 2016.
The Conference Board of Canada will host a webinar, Canada's Fiscal and Economic Outlook: Small Winners, Bigger Losers, on 13 March 2015.
Adapted from press release by Joe Green