Fiscal restraint, stronger commodity prices and a powerful Canadian dollar will lead western provincial economies to outperform those of central and eastern Canada this year, a new forecast shows.
"All of these factors appear to favour growth in western Canada over central and Atlantic Canada, and while we're a long way from the commodity-boom days of 2007, the regional growth divide should assert itself in the coming year," economists Michael Gregory and Robert Kavcic of BMO Nesbitt Burns said in their report.
"Growth is expected to top 3 per cent in western Canada, led by 4-per-cent growth in Saskatchewan as the agriculture sector bounces back from a flood-ravaged 2010."
That compares to BMO's projections of 2.6-per-cent growth in Ontario, 2.5 per cent in Quebec, and 2 per cent in the eastern provinces, except for Newfoundland and Labrador.
"The coming year will see stimulus spending reined in across most of the country as capital spending programs, which were ramped up during the recession, begin to wind down," the report said.
"Additionally, the budget-balancing work will likely begin in earnest this budget season, and the restraint required to accomplish the task will be much larger in central and Atlantic Canada, which face deeper fiscal holes. Indeed, at about 3 per cent of GDP, Ontario's deficit is the deepest in Canada, while other provinces like Quebec and Nova Scotia have already begun the budget-balancing task through a series of tax hikes."
The western provinces, the economists said, are in "relatively healthy shape" on the fiscal front, noting that stronger growth and firmer commodity revenues will help on the budget front.
The manufacturing-heavy provinces, in turn, will be held in check by the strong dollar.