What is the current state of the provincial economies across Canada according to CIBC’s latest outlook? Quebec has entered recession territory with two consecutive negative GDP quarters in 2023, while other provinces like BC and Ontario are grappling with housing market challenges and the broader impact of global demand decline.
Canada’s provincial economies are facing a challenging climate as recent data points to a diverse set of economic headwinds. The latest outlook from CIBC reveals that Quebec, in particular, is experiencing a sharp downturn, with back-to-back quarters of negative GDP growth in 2023, indicative of a recessionary phase.
Across the geographically diverse landscape of Canada’s economy, the Prairies have been afflicted by one-off setbacks such as droughts and wildfires which have notably hampered exports. Despite a potential for rebound in 2024, concerns linger as global demand continues to wane, potentially capping any recovery efforts.
British Columbia (BC) and Ontario have also felt the chill of an economic slowdown, largely owing to a tightening housing market. The impact of mortgage renewals has rippled through consumption rates, and in Ontario, this is compounded by the reverberations from an auto sector strike in the U.S., which has disrupted supply chains. BC’s economy has also been strained by a port strike, adding to the province’s hurdles.
CIBC’s analysis, however, brings to light a silver lining. The decline noted in 2023’s momentum indicator falls short of the lows observed during the 2008/09 financial crisis. Recent months have shown a comparative uptick in activity, likely buoyed by the resolution of disruptive events such as the BC port strike and the Alberta wildfires, alongside an unseasonably mild winter onset.
Despite these interim recoveries, Quebec’s economic troubles remain persistent and multifaceted. Business investment is slowing and homebuilding is experiencing a significant downturn, with housing starts in Quebec plunging by 32% in 2023, a stark contrast to the 8% decrease nationally. Inflation, while on a downward trend, has seen a particularly pronounced surge in Quebec, fueled partially by tighter labor markets and increased wage pressures.
The inflationary heat has been stoked further by government transfers to households, which, although bolstering spending initially, have left savings cushions thinner, especially when adjusted for inflation. In BC and Ontario, the so-called excess savings have been virtually depleted when inflation is taken into account, resulting in dampened consumer demand.
This economic pressure is reflected in the business sector, with BC and Ontario witnessing notable increases in business bankruptcies since the pre-pandemic era. The ripple effect of strained household finances, due to high mortgage rates and considerable debt-to-income ratios, is evident. Business insolvencies have taken a more adverse turn than household ones, excluding the Atlantic provinces, setting a concerning precedent for potential impacts on employment in 2024.
As the provinces navigate through these economic currents, the resilience of their economies will be tested. The end of disruptive events provides temporary relief, but underlying issues such as inflation, housing market constraints, and global demand shifts pose significant challenges. The path ahead for Canada’s provincial economies looks to require careful steering to foster recovery and stability in the face of these persisting headwinds.
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