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Canadian cities’ fortunes show two-speed economy Add to ...

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When you talk about Canada’s current economic challenges, there’s a legitimate question that must now be asked: Which Canada do you mean?

Toronto-Dominion Bank’s latest Metro Beat report on the economic state of Canada’s cities – the true core unit of economic activity in any developed country – illustrates the wildly uneven nature of the national economic recovery, and the deep divisions along geographic lines. If you needed evidence of the two-speed nature of the Canadian economy, it’s right there in the numbers.


Source: Toronto-Dominion Bank. Click to enlarge

The weighted average unemployment rate for cities west of the Manitoba-Saskatchewan border is more than two percentage points lower than the major cities in Ontario, Quebec and Manitoba. The Western cities are creating almost twice as many jobs as the rest of the country combined, and roughly triple the pace of Central Canada. Average personal incomes in Western cities are about 15 per cent higher than in cities in the rest of Canada.

Little wonder, then, that the Western cities are expected to post economic growth, on average, of nearly 3 per cent this year – a full percentage point higher than the major urban centres in the rest of the country. Canada’s growth ship is listing distinctly to the east.


Perhaps most troublesome for policy makers, both at the Bank of Canada and the federal Finance department, are the night-and-day disparities on their two most critical economic files: Inflation and the housing sector. The commonly told tale has been that the former is dangerously cold (“disinflation”) and the latter dangerously hot (“housing bubble”). But while disinflation may be an issue in Ontario and Quebec (average city inflation rate of 1.4 per cent), but it’s non-existent across the Prairie cities (average 2.5 per cent). Housing looks stubbornly bubbly in most Western cities (year-over-year home sales up an average of 12 per cent), but cooling in Central Canada (down 3.8 per cent) and positively depressed in the key Atlantic-region cities (down 21.4 per cent). An average home in the West is more than double the price of an average home on the East Coast.


But how do you craft policy to address problems that don’t exist in large swaths of the country? How can any national policy address such wide divergences adequately?

The short answer is, it can’t. Policy makers are walking a delicate tightrope. Their default position – and it may be the most reasonable one – is to focus on the biggest problems affecting the most people. If policy is going to tip in one direction over another, it will be to Central Canada – which still accounts for more than half of the country’s urban population. This may be why the temptation recently has been for Ottawa to put disinflation-fighting monetary policy ahead of its housing and consumer-debt worries.

In the longer run, though, perhaps Ottawa is onto something when it talks about the country’s labour shortages and mismatches. In a perfect economic model, the regional discrepancies in growth, employment and earnings would lure workers from the disadvantaged to the advantaged cities, eventually bringing the overall economy better into balance. Yet despite surging populations in Western cities, Statistics Canada data show that interprovincial migration has actually been trending downward for the better part of two decades.

In short, people aren’t moving to the places where the economy most needs them – and this is magnifying economic imbalances. The discrepancies scream for the need to remove interprovincial barriers to labour mobility – reform things like skills training, taxation, benefits and certification systems to promote migration where they now too often discourage it. It may be the best route to keeping these short-term imbalances from becoming a long-term economic and political headache.

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