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Canada: From Three "Have" Provinces to Just One and a Half

8 Aug 07

During the 1980s, Canada had three solid "have" provinces. Today, Alberta is the only one, though, as B.C.'s standard of living has fallen below the national average, while Ontario's is barely above average and on a downward trend.

From the early 1980s until the early 1990s, Canada had three provinces solidly in the "have" category. British Columbia left the camp in the late 1990s, however, and now Ontario's standard of living is heading down toward the national average, leaving only Alberta at the top. This note reviews the fortunes of Canada's "have" provinces, along with the implications for the future, based on Global Insight's July 2007 Provincial Forecast.

In this paper we measure standard of living by real GDP per capita, the most common measure. At the same time we recognize that this measure is a rough indication of standard of living, no more and no less. We identify a "have" province as one whose real GDP per capita is above the Canadian average.

Alberta: Always and Forever Number One

Alberta has had the highest standard of living of any province every year since the early 1980s, and there is no letup in sight. Moreover, its GDP growth has outpaced Canada's overall growth almost every year since 1990, and this strong performance is expected to continue over the medium term. Alberta has also had stronger population growth than most other provinces. However, the rapid pace of economic expansion in Alberta has been more than sufficient to consistently provide Albertans with GDP per capita beyond that of any other province.

Since 1993, Alberta's economic growth has outstripped the country's by a wide margin, largely—but not entirely—due to strong energy prices. Alberta has also offered an "open for business" low tax environment. The high demand for energy in Alberta has required and attracted workers, whose productivity has been sufficient to provide high and rising real GDP per capita. The strong Canadian dollar, along with a few other issues, has dragged down the pace of growth in central Canada, especially Ontario, making it easier for Alberta to maintain its lead. The oil sands and this business-friendly investment climate are expected to provide Alberta with a stronger pace of economic growth during 2007–12 than any other province.

In 2002, Alberta's standard of living was 19% above the Canadian average. By 2006, this had risen to 24% above. Global Insight's July Provincial forecast expects Alberta's economic growth to continue to outpace that of Canada overall, while its population also expands faster than in any other province, allowing Alberta to maintain its standard of living almost 25% above the Canadian average through 2012.

Ontario Moves Downward—and Stays There

Since the early 1980s, Ontario has had the second highest standard of living of any Canadian province, as high as 15% above the Canadian average in the mid-1980s. Indeed, when Alberta experienced a dip in growth in 1986 and 1987, Ontario briefly tied for first place. The Ontario standard of living, which was 9% above the Canadian average in 2002, last year dipped to 7% above.

The Ontario economy has been expanding at a pace below the Canadian average since the SARS and electricity blackout days of 2003, held down by the appreciating Canadian dollar and high energy prices. Relatively high business taxes have contributed to a relatively weak investment climate. The economy has not completely adjusted to the high Canadian dollar, and the auto sector is also in adjustment. In the longer term, however, the Ontario economy is better positioned than almost any other province to flourish in the knowledge-based economy. As a result, Ontario's standard of living is forecasted to fall to 5.5% above the Canadian average this year and to continue falling until it levels off to about 4.0% above the Canadian average in 2010.

It should be noted that the Ontario standard of living is falling only relative to the Canadian average; taken on its own, it is still climbing, just not as fast as some other provinces, particularly Alberta. For example, during 2002–07, while the Ontario economy was growing at an average pace of 2.2% per year, the population was increasing by 1.2%, meaning that real GDP per capita (standard of living) was growing about 1.0% per year on average. This was well short of the 1.7% Canadian average, let alone the 3.0% per year pace for Alberta .

British Columbia: No Longer a Star

British Columbia's standard of living was more than 10% above the Canadian average in the early 1980s, and remained comfortably about 5% above the Canadian average from the mid-1980s to early 1990s. In the late 1990s, however, it plunged to 7% below the Canadian average. Weak commodity prices, weak demand from Japan, and a souring business environment precipitated this collapse. In recent years, strong commodity prices, and particularly an "open for business" environment, have brought stronger economic growth to the province. As a result, British Columbia's standard of living has now moved up to 96% of the Canadian average, where it is expected to remain over the medium term.

Saskatchewan Is on the Rise

Saskatchewan has never been a "have" province, but it is getting closer every year. In the late 1990s, it briefly moved ahead of British Columbia, at 98% of the Canadian average, and since then has provided stiff competition for third spot in the provincial standard-of-living rankings. Global Insight's forecast calls for Saskatchewan to move past British Columbia this year and to stay slightly ahead, at only about 1% below the Canadian average over the medium term. Saskatchewan's energy resources, uranium and potash, and decent agricultural crops will bring strong growth to the province this year, moving it past British Columbia. Going forward to 2012, the Global Insight forecast sees Saskatchewan keeping slightly ahead of British Columbia, and just a shade under the Canadian average. Saskatchewan's rate of economic growth is expected to be below the Canadian average, but a shrinking population and rising labor force participation rate will yield good gains in real GDP per capita.

by Dale Orr

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