Manitoba and the Maritimes will narrowly avoid recession this year, and recovery is in sight for most of the other provinces, the Conference Board of Canada says in a new forecast.
But the rebound is being spurred mainly by huge government stimulus packages, the Conference Board warned. Provincial coffers will be in such a mess when the recession is over that many Canadians should expect higher taxes and fewer services in the years to come.
"The economic recovery as forecast over the medium term will not suffice on its own to bring regional governments back into surpluses," the report stated. "The implication is that, sooner or later, provinces will have to boost taxes and cut spending in order to return to a balanced budget."
In the near term, New Brunswick is expected to lead the country in growth this year, but the bar is low. Driven by government infrastructure spending and a provincial tax cut, the province should be able to eke out 0.9 per cent growth this year.
The other Maritime provinces - Nova Scotia and Prince Edward Island - should also be able to avoid recession, the Conference Board said. Offshore natural gas and government spending should help Nova Scotia, while PEI will benefit from government spending and wind energy investments.
The B.C. economy has taken a beating
Similarly, government stimulus programs should allow Manitoba to grow 0.8 per cent this year, although the future is uncertain because of an expected drop in construction next year and lingering damage from the Red River flooding this year.
All the other provinces - which make up more than 92 per cent of Canada's economy - are in recession this year. But the Conference Board, like other economic analysts, believes growth is resuming in most parts of the country.
British Columbia has suffered its worst contraction in 27 years, and recovery will be slow, the analysis warns.
"The B.C. economy has taken a beating."
But the 2010 Olympic Games and a simultaneous resumption of global demand should allow the province to expand by 3.4 per cent in 2010, the Conference Board says.
As the U.S. and Canadian housing markets recover, B.C.'s forestry industry should get a lift, note economists at Bank of Nova Scotia, who also released a provincial outlook on Thursday. But natural gas, another key element of the West Coast economy, is in a lull, they warned.
In Alberta, the recession started earlier than other parts of the country, but much lower construction and input costs will encourage a recovery in business investment soon. And rebounding commodity prices will help considerably too, leading to a pickup in overall economic activity next year.
As for Saskatchewan, analysts are sharply divided about its prospects. The Conference Board believes its economy will contract 2.7 per cent this year because of a horrible growing season and a steep drop-off in demand for potash, used to make fertilizer.
But the Bank of Nova Scotia thinks Saskatchewan will be the only province to growth his year, because potash will rebound and healthy household finances will fuel consumer spending.
Both forecasters expect strong growth in Saskatchewan next year.
In Ontario and Quebec, where manufacturing is key, both provinces are struggling to move on. Fiscal stimulus is an important driver in both provinces, but Quebec is handling the recession much better than Ontario.
Signs that the auto sector is coming back to life will help Ontario turn the corner. In Quebec, government spending should help make up for pain in the metal and aluminum industries, and a slide in pulp and paper.
Newfoundland and Labrador, however, is having a tougher time turning the corner.
Because of production declines in the oil and gas sector, compounded by low prices, the province is on track for its deepest downturn ever. Pulp and paper troubles and poor demand in the seafood have made things even worse. The Conference Board sees a 3.4 per cent contraction this year, and will be the slowest province to recover, according to the provincial forecast.
It projects a persistent deterioration in the province's labour market, leading the unemployment rate to rise back up to above 16 per cent by the end of next year.
Bank of Nova Scotia is less pessimistic about Newfoundland. It believes rising oil prices and improvement conditions for iron, ore and nickel should help the province get out of its rut next year and grow 2.4 per cent.