No Provincial Economy Immune from US malady
RBC released it’s Provincial Outlook today and is quite clear “no provincial economy immune from US malady”.
The tone for the report is caution throughout most sectors including labour, housing, exports and Canadian dollar.
Saskatchewan is expected to be the growth leader in 2008 as its economy benefits from strength in energy, mining, and agriculture. Newfoundland is expected to be the laggard as waning oil production weighs on its growth.
Housing affordability is poised to improve across the country this year on the back of falling mortgage rates and cooler house price gains. House price growth is expected to move into the single-digit range in almost every province by year-end. This contradicts Remax’s 2008 house price increase for St. John’s but is in line with CMHC’s report.
Saskatchewan will continue to benefit from last year’s in-migration surge in 2008 before housing activity simmers down in 2009. Every province except Saskatchewan is likely to see a decline in new home construction in 2008.
Saskatchewan — The new provincial growth leader
We expect Saskatchewan to be Canada’s top growth performer this year, coming in at 3.6% in 2008 and 3.2% in 2009. Saskatchewan and Manitoba have become the new ‘it’ provinces with hot housing markets, big capital spending plans and tight labour conditions. Saskatchewan now ranks number-one across all key housing indicators that we track. House prices became overvalued in a very short time and it is likely only a matter of months before a decelerating trend sets in to bring markets back closer in line with underlying fundamentals. The cool down is likely to be similar to what is currently going on in Alberta. On the business side, however, Saskatchewan has more upside potential than Alberta. Saskatchewan benefits from strong export volumes and high prices for oil, uranium, potash and grains. A surge in migration inflows confirm that these strengths are being noticed. The unemployment rate (4%) is holding at its lowest rate in 25 years and skilled labour shortages are a growing concern. Labour shortages are supporting the fastest wage growth in the country.
Newfoundland and Labrador — Waning oil production
Newfoundland topped the growth charts last year — growth is expected to have come in at about 9% — but is set to slip to last place in 2008 as oil production declines. Offshore oil production is expected to drop 15% in 2008 as all three oil producing fields face falling production volumes. Prospects for expansions at existing oilfields leave the door open for upside potential in the early part of the next decade. Potential projects include the Hebron development, the Hibernia Southern Extension and an expansion at White Rose. The province’s mining sector (mostly made up of nickel and iron ore) is offsetting some of the weakness on the oil front. Iron ore prices have soared by 66% since 2007 and are expected to keep the value of shipments at an elevated $4 billion in 2008 for a second consecutive year.