Quebec economy dodges the worst of the recession

While the Quebec economy has managed to dodge some of the recession's most damaging effects, the province will still register a sizable decline this year, according to the latest RBC Economics report.

"Strong capital spending on public infrastructure and a resilient housing sector have been Quebec's main buffers against the downturn," noted Craig Wright, senior vice-president and chief economist, RBC. "While those expenditures are moving forward, private firms have reduced their capital goods spending which is weakening the province's economic outlook."

With survey numbers suggesting a greater cut back in business investment than previously expected, RBC has further reduced its real GDP forecast for Quebec in 2009 to -1.9 per cent from the -1.6 per cent previously forecast in June. The projected rebound in 2010 also has been adjusted marginally downward to 2.2 per cent from the previous 2.3 per cent.

Meanwhile, the housing sector has regained stability throughout the spring and summer, following a volatile market that saw resale activity plunge in late 2008 and early 2009. This rebound has alleviated fears that residential investment would be derailed, keeping home-building activity on track towards a soft landing, as previously expected.

"We anticipate that recovering demand from Quebec's main trading partners, particularly Ontario and the U.S., as well as improving consumer and business sentiment, will help the province return to positive growth mode in 2010," added Wright.

The main theme of the RBC Provincial Outlook is that, while the collective performance in Canada has largely unfolded as anticipated, recent developments on the provincial side indicate that the contraction in activity is more widespread than previously thought. In response, RBC has adjusted its forecast and is projecting that nine provinces will post negative growth in 2009, leaving Manitoba as the sole province expected to show positive, if modest, growth this year. RBC is forecasting that the economies of all ten provinces will expand in 2010, with western Canada leading the way. Saskatchewan and Nova Scotia are now expected to contract (due primarily to poor summer crop conditions and weakened capital spending, respectively). On the other hand, Ontario has shown encouraging signs that a rebound will emerge during the second half of this year, prompting a reduced rate of decline overall in 2009.

The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.

According to the report, available online as of 8 a.m. EDT today at www.rbc.com/economics/market/pdf/provfcst.pdf, provincial forecast details are as follows:

                    Real GDP          Housing starts         Retail sales                     Y/Y % Change          Thousands            Y/Y % Change                 08     09     10      08     09     10      08     09     10                 --     --     --      --     --     --      --     --     --     N.& L.    -0.1   -3.5    2.0     3.2    3.1    3.0     7.6    0.9    4.3      P.E.I      0.9   -0.1    2.0     0.7    0.6    0.7     5.6   -1.0    4.0      N.S.       2.0   -0.4    2.6     4.3    3.3    3.5     4.2   -1.7    4.4      N.B.       0.0   -0.8    2.7     4.2    3.6    3.5     5.9   -1.6    4.1      QUE.       1.0   -1.9    2.2    47.9   40.5   39.0     5.1   -1.4    4.6      ONT.      -0.4   -3.1    2.6    75.6   51.9   65.0     3.5   -3.1    4.1      MAN.       2.4    0.1    3.0     5.6    4.2    5.3     7.2   -1.7    5.1      SASK.      4.4   -1.3    3.6     6.8    3.2    3.7    10.6   -1.3    5.8      ALTA.     -0.2   -2.8    3.0    29.0   17.1   28.0    -0.1   -7.3    5.6      B.C.      -0.3   -2.6    3.2    34.3   14.8   24.0     0.3   -6.4    6.0      CANADA     0.4   -2.4    2.6     211    142    176     3.4   -3.5    4.8                      Employment        Unemployment rate                    Y/Y % Change                %                 08     09     10      08     09     10                 --     --     --      --     --     --     N.& L.     1.5   -2.4    1.1    13.2   15.4   15.5      P.E.I      1.3   -2.0    1.2    10.7   12.7   12.9      N.S.       1.2   -0.1    1.0     7.7    9.3    9.6      N.B.       0.9   -0.2    0.7     8.6    9.3    9.8      QUE.       0.8   -1.0    1.1     7.2    8.8    9.4      ONT.       1.4   -2.4    1.0     6.5    9.3    9.9      MAN.       1.7    0.2    1.3     4.1    5.2    5.6      SASK.      2.2    1.5    1.0     4.1    4.9    5.3      ALTA.      2.7   -1.1    1.1     3.6    6.6    7.1      B.C.       2.1   -2.5    2.1     4.6    7.7    7.6      CANADA     1.5   -1.6    1.2     6.1    8.5    9.0