“For the second straight year, the overriding theme in 2016 remains the unusually large gap in economic performances between the top performing provinces (B.C. and Ontario) and those at the bottom of the charts (Alberta, Newfoundland and Labrador, and Saskatchewan),” TD Bank said in its latest provincial forecast. “The weak oil price environment has continued to take its toll on the struggling oil-producing regions, particularly with respect to investment in the sector. Meanwhile, robust housing markets and related spillover effects are providing an enormous boost to the leaders, masking the disappointment seen in manufacturing and exports.
“Looking ahead, the next two years will likely shape up differently, with growth differentials poised to narrow.”
The oil industry is expected to rebound – which is good news for Alberta and other oil-dependent regions – with prices expected to surpass US$50 a barrel.
Indeed, Alberta and Saskatchewan are poised toovertake all other provinces in terms of real GDP in 2018, according to TD.
On the on the other hand, housing vulnerabilities are expected to negatively impact Ontario and British Columbia.
“With activity expected to moderate over the next 1-2 years, this recent source of growth advantage is likely to transform into one of disadvantage. B.C. – and Vancouver in particular – is no stranger to the cyclicality of the housing market. And after three strong years of defying gravity, a down cycle appears underway,” TD said.
“While new home construction is up by about40% so far this year – a welcome development given the limited supply – the pace is unsustainable and is likely to be unwound, with double digit declines in housing starts expected in 2017 and 2018.
“Moreover, signs that sales are losing momentum have already surfaced – with August’s 18% plunge pushing sales below year-ago levels for the first time in more than three years. This sizeable decline was due in large part to the implementation of the foreign buyer’s tax that came into effect at the start of the month.
“While some of this extreme weakness may reverse in the coming months, the new tax should keep a lid on sales into at least early-2017. What’s more, the recent cooling in the market may also spook domestic buyers, limiting both demand and price growth next year.”
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Toronto and Vancouver have performed above all other markets for the past few years, but expect some underdogs to minimize that gap, according to one big bank.