Posthaste: These three provinces are expected to feel the most pain as recession looms (2023)

Ontario's economy may actually shrink in 2023

Author of the article:

Pamela Heaven

Published Jan 23, 2023Last updated 16hours ago5 minute read

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As Canada heads into a downturn, if not outright recession, some provinces are in for a rougher ride than others, according to economists.

On one side of the country, high commodity prices are keeping the economies of the resource-rich Prairies afloat; on the other, a population boom in the Maritimes is helping support the housing market and consumer spending.

Then there’s Ontario.

“Soaring interest rates and a higher cost of living will radically change the landscape, causing many Ontarians and businesses to tighten their belts,” said Royal Bank of Canada economists Craig Wright, Robert Hogue and Nathan Janzen in their outlook report.

Ontario is the only province where RBC expects the economy to actually shrink in the coming year, forecasting a 0.1 per cent decline in real GDP for 2023.

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Posthaste: These three provinces are expected to feel the most pain as recession looms (4)

The quick deflation of the housing boom brought on by rising interest rates has taken the wind out of a major contributor to the economy.

Ontarians who carry heavy debt loads are being hit by the “nasty combination” of higher borrowing costs and inflation. As a result, RBC expects household spending to fall, with discretionary items the first to go.

Ontario manufacturers have been hit by global supply chain disruptions over the past few years, but demand hasn’t been a problem, RBC said. Now, with a slowdown impacting markets here and aboard, the economists see demand waning and manufacturing activity slowing in the year ahead.

British Columbia, with the heaviest household debt load in the country, is especially sensitive to rising interest rates. Like Ontario, the housing market that supported the recovery through much of the pandemic has turned and RBC sees a “deeper pullback” in residential investment and household spending this year.

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The outlook isn’t great for non-residential investment, either. Major projects in the province, such as the Site C hydroelectric dam, LNG Kitimat and Coastal Gasoline pipeline, are either winding down or are past the ramping-up stage, the report said, and won’t be contributing to growth.

Nor does there appear to be anything in the pipeline to take their place, with the start of liquid natural gas production still a few years away, they said. RBC expects real GDP in British Columbia to inch up 0.3 per cent in 2023.

Quebec’s economy was already showing signs of slowing late last year. The solid increases manufacturers enjoyed earlier in the pandemic when demand was high are slipping, and RBC expects that will broaden to the services sector this year as Quebecers tighten their belts.

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A possible recession in the United States, Quebec’s biggest foreign market, will also dampen demand for exports. “Added to a more challenging outlook for consumers and businesses at home, we think this will keep many Quebec manufacturers on the defensive in the year ahead,” the report said.

Quebec’s outlook for real GDP growth this year, according to RBC: a big flat zero.

It would be remiss not to mention the one province in Canada where you’re not likely to hear the R word this year: Alberta.

“Our forecast calls for a solid 1.9 per cent growth in 2023, outpacing all other provinces,” RBC said.

Much is down to a stronger energy sector. RBC expects oil prices will be 54 per cent above pre-pandemic levels in 2023; drilling activity is expected to continue to rise; and the completion of the Trans Mountain Pipeline expansion could expand exports. Investment in decarbonization is also on the rise. Work on Canada’s largest solar farm is almost done in Alberta’s Sun Belt, and smaller projects are starting, the economists said.

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Alberta’s economy is also benefiting from a stronger housing market. Lower prices have attracted migrants from within Canada and abroad, and housing starts are expected to rise in 2023.

Still, no province can completely escape slower growth. The 1.9 per cent gain RBC forecasts for 2023 is a big comedown from the 4.9 per cent growth it expects Alberta had in 2022.

Across Canada, higher debt payments and inflation are expected to subtract an additional $3,000 from a household’s purchasing power this year, RBC said.

“While there’s plenty to cheer about, Alberta households aren’t immune to the challenges posed by soaring interest rates and high inflation.”

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Posthaste: These three provinces are expected to feel the most pain as recession looms (5)
Posthaste: These three provinces are expected to feel the most pain as recession looms (6)

Canada scored another record; this time for the lowest number of people claiming Employment Insurance. Statistics Canada, which brings us today’s chart, said 396,000 people received EI benefits in November, down by 23,000, or 5.4 per cent, from October. That’s the lowest number on Statscan’s record books going back to 1997 when comparable data became available — except for the summer of 2020 when Canadians were able to collect the Canadian Emergency Response Benefit.

Those on EI fell the most in Quebec, down 9.5 per cent and in Ontario, down 6.7 per cent. These two provinces, which Statistics Canada says have both seen steady declines in EI recipients since July 2022, account for three-quarters of the monthly decline.

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Windsor saw the biggest drop among cities, down 44 per cent, followed by Quebec City, down 10.9 per cent and Montreal, down 10.8 per cent. On the other end of the scale Kelowna saw EI beneficiaries climb 16.5 per cent and Saskatoon, 7 per cent.

Posthaste: These three provinces are expected to feel the most pain as recession looms (7)

  • Prime Minister Justin Trudeau holds a cabinet retreat
  • Natural Resources Minister Jonathan Wilkinson will hold a media availability following presentations from local clean technology companies at the Western Sarnia-Lambton Research Park
  • Today’s Data: Canada new housing price index, U.S. Leading Indicators
  • Earnings: Baker Hughes

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Posthaste: These three provinces are expected to feel the most pain as recession looms (8)

Posthaste: These three provinces are expected to feel the most pain as recession looms (9)

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Posthaste: These three provinces are expected to feel the most pain as recession looms (10)

  • Exclusive: The inflation dragon has been slain: David Rosenberg
  • Where investors might want to look if interest rates and inflation persist
  • It costs $1,000 less to rent in Montreal than it does in Toronto. What gives?
  • Howard Levitt: Employee forced to pay back wages for ‘time theft’ won’t be the last

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Posthaste: These three provinces are expected to feel the most pain as recession looms (11)

The top 20 per cent of Canadian income earners pay more than 61 per cent of the income tax, according to a Fraser Institute study from 2022. Today, the marginal tax rate in Ontario for those earning over $235,675 is 53.53 per cent. Ted Rechtshaffen has four ways that the wealthy can reduce their tax bills, so that they are only paying 5 times instead of 7 times what the average person pays on taxes.

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Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us atposthaste@postmedia.com, or hit reply to send us a note.

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