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Boom in Western Canada expected to quiet as national economy cools

Despite a stable, if not rapidly climbing economy, the boom enjoyed in Western Canada is not likely to be sustained, especially as economic influences across the rest of the country begin to cool.


October 2, 2008
By Canadian Press/Brandon Sun

October 1, 2008

Vancouver -The economic boom in Western Canada, the oil, mineral and grain-rich region that has driven growth in the national economy for years, is expected to drop to more of a quiet buzz as the housing market cools and commodity prices fall off, economists say.


As the global economy slows, economists are adjusting their Canadian growth figures for a modest increase of about two per cent for Western Canada, compared with flat growth of less than one per cent for the rest of the country.

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"The Western Canadian economies are not immune to some of these external challenges facing the economy," said TD Bank economist Derek Burleton.


"We are expecting lacklustre growth for the West, particularly compared to the booming rates we've seen in the past few years."


Soaring demand for oil, potash, coal, minerals and grains helped make the four western provinces the fastest growing region in Canada in recent years, offsetting a slump that cut nearly 400,000 jobs in the battered manufacturing sector in Ontario and Quebec.


But the Wall Street financial meldown that has spilled into Europe and Asia – a big buyer of Western Canadian resources – threatens to clamp down on overseas demand for Canadian commodities.


A key Japanese central bank report Wednesday concluded that major Japanese manufacturers are the gloomiest they've been in five years amid a deepening global slowdown.


Japan is a big importer of Canadian coal, chemicals, wood and other raw materials.


In B.C., the slump in the U.S. housing industry has led to sawmill closures and layoffs in the lumber sector, but the province has benefited from the sale of other resources, primarily minerals and natural gas.


Rising housing prices have been a big driver of strong consumer sentiment and retail sales in the West. But that market is already showing signs of a slowdown, and that could impact related industries. including retail and construction.


"If housing weakens, consumers feel less wealthy and that tends to crimp spending," Burleton said.


He believes Saskatchewan will outpace the rest of Western Canada with about a three per cent growth rate this year thanks to its agricultural sector, in particular wheat and potash.


"That province has emerged as a real commodity superstore," said Burleton.


Simon Fraser University economics professor Richard Harris is more skeptical and believes if signs of an economic slowdown continue in countries such as China and India, the impact will be felt across resource-rich Western Canada, including Saskatchewan.


Demand for commodities in those countries in recent years has been behind some of the economic growth in the West, Harris said.


He also believes the U.S. is in a recession that will likely follow in Canada. While Central Canada will be hardest hit because of its manufacturing focus, Harris believes Western Canada will also feel an impact.


"People will lose their jobs . . . across a wide range of industries," Harris said.


BMO Capital Markets analyst Robert Kavcic believes Alberta will have a tough time in an economic slowdown because of its dependence on oil revenues.


"To the extent that oil prices continue to fall as global economic activity weakens, that would have a pretty major impact in Alberta," Kavcic said.


He said many oil and gas projects in Alberta require crude to trade above
US$80 per barrel to be profitable.


"If you get a really sharp pull back in the price of oil that could have a pretty big impact, but we are still near $100 oil," said Kavcic.


Overall, he believes Western Canada will continue to be the economic driver in the country.


"The West has definitely carried the country for the past couple of years in terms of economic strength," Kavcic said.


"Commodity prices have come off quite a bit so the strength in Western Canada has come off, but in terms of the relative standing we are still expecting them to be a leaders in Canada for the next two years."