Provincial Economic Forecast: Alberta and Saskatchewan to Top Growth Leaderboard This Year
We’ve downgraded our 2022 growth forecasts in most provinces by 0.1-0.9 percentage points compared to our March forecast, as a steeper climb in borrowing costs and persistently elevated inflation crimp household and business spending across the country. Real GDP is now projected to run from 1.4% in Newfoundland and Labrador to 5.5% in Alberta. The good news is that most regional economies appear to have entered the summer in solid form, leaving a cushion to absorb these shocks.
As in recent months, households in the Atlantic region are expected to face the most intense inflation pressures in the near term, given the relatively high share of household budgets taken up by food and energy products. However, household debt burdens in the Atlantic (alongside Quebec and Saskatchewan) tend to be comparatively small. The opposite is true in Ontario and B.C., likely increasing the sensitivity of households to higher interest rates. Meanwhile, the Prairie and B.C. economies should continue to benefit from higher prices for agricultural and energy commodities, providing a strong counterbalance to the financial headwinds on households in those regions.
Averaging around $110 per barrel in the second quarter, crude oil prices have moved in line with our March forecast. We project an even higher level for prices in the third quarter, before they gradually fall back towards $100 per barrel by year end on the back of a reduced fear premium, some demand destruction and modestly higher global supply.
In the recently concluded provincial budget season, several governments committed to rolling out relief to households to help them cope with inflation. Notably, government spending should provide a tailwind to expansions. In aggregate, the Provinces are projected to remain in deficit over the medium term, while little headway will be made on reducing debt-to-GDP ratios.
Housing markets are retrenching under the weight of higher interest rates. Home sales are down across nearly all provinces since February, while average home prices have dropped in Alberta, B.C. and especially Ontario. We believe that there is further downside left for markets as rates climb, and are forecasting continued declines in home sales and prices through the remainder of the year.