The Canadian economy has continued to underperform global peers. Declines in per-capita output in seven of the last eight quarters have left average income per person back at decade-ago levels and the unemployment rate rising more than in other advanced economies.
Canada is not “officially” in a recession with a high rate of immigration increasing the numbers of consumers in the country, but per-capita gross domestic product and the unemployment rate are more representative of what individual households and workers are experiencing in the current economy, and on that basis, it certainly feels like one.
The good news is inflation is slowing as the economy softens, and that has allowed the Bank of Canada to begin easing monetary policy with three straight 25 basis points cuts in the overnight rate since June. Interest rates are still at a high enough level to slow rather than aid economic growth. The lags between changes in market interest rates and actual household borrowing rates mean debt servicing costs will continue to rise—particularly for households renewing fixed-rate mortgages that date back to the exceptionally low levels of rates during the pandemic. Still, we look for the BoC to continue pushing interest rates gradually lower, and that will help limit the size of the consumer payment shock and allow for a pickup in the economy in the second half of next year.
Globally, the economic backdrop has continued to gradually soften, but the pace has not yet shown signs of imminent collapse. GDP growth is still positive, led by emerging markets despite growth in China continuing to slow. In Europe, the German economy is suffering from a broadly weaker global manufacturing backdrop, but growth in the eurozone as a whole has held up thanks to stronger service sector activity boosting output in Spain and France. Commodity prices have pulled back but are still at high enough levels to support revenue flowing into Canada’s natural resource-producing provinces.
Worries have increased more significantly in financial markets about the durability of the U.S. economic recovery. U.S. unemployment is still low, but it has been drifting gradually higher, and that, historically, doesn’t happen outside of U.S. recessions. We think there are enough reasons to believe this time is “different,” thanks to an unusual and exceptionally large U.S. government budget deficit that is keeping a floor under U.S. demand. The U.S. Federal Reserve will continue to lower interest rates against that backdrop. We expect a gradual and limited pace of cuts but, the Fed is clearly willing to do more should the economic backdrop prove softer than expected.
Risks around the U.S. outlook remain tilted to the downside, and uncertainty about future U.S. trade policy on the outcome of the November elections is a particularly significant risk for Canada. U.S. growth has been propped up largely by household and government spending, and spillover to Canada has been limited because neither of those U.S. sectors includes a lot of imports. The U.S. manufacturing sector—where ties with Canada are much tighter—has been underperforming and would be the most directly at risk in the event of a significant escalation in U.S. tariffs. Still, we expect U.S. GDP growth to slow, and the unemployment rate to edge higher in the year ahead but for the economy to narrowly avoid a recession.
Canada’s labour market is softening at a pace and magnitude that is consistent with prior recessions. But the correction in the labour market looks quite different than usual. About 80% of the increase in the unemployment rate comes from the population aged under 35, and disproportionately from students and new graduates, who take longer to find a first job, rather than layoffs. This is why the unemployment rate has increased even as the count of employed workers has not declined.
The broader economic impact of a rising unemployment rate driven more by longer job search times for younger workers is different. It means a lower share of layoffs than usual, which means less of an immediate income shock tied to a higher unemployment rate than would be the case if the increase was more broadly based across the entire population. But, it also means there is less of an automatic government support backstop, because this generation is less likely to qualify for support programs like employment insurance. It is also likely a large part of why the Bank of Canada’s rate cuts have yet to pull the Canadian housing market out of its slump. Homes are still largely unaffordable, interest rates are still high, and the population of typical first-time home buyers is seeing significantly higher unemployment.
We’re keeping Ontario (0.7%) and B.C. (0.9%) at the lower end of our 2024 provincial growth rankings—though have revised both slightly upwards on stronger than expected activity in the early part of this year.
Quebec’s economy (1.1%) is showing signs of a turnaround after a particularly weak year in 2023, pulling real GDP growth just ahead of the national average this year.
Out east, strong household spending and construction activity continue to bolster economic growth across most Atlantic provinces—including Newfoundland and Labrador (1.5%) which is gearing up for more activity in the oil sector with all four offshore vessels returning to production later this year.
An uptick in commodity markets is boding well for Alberta (2.7%) and Saskatchewan (1.9%). Additional pipeline capacity from the Trans Mountain Pipeline Expansion project has boosted the outlook for Alberta’s oil and gas industry, while increased demand for potash has kept the mining industry busy and capital expenditures flowing in Saskatchewan.
We maintain the position that B.C. will struggle more than most other provinces in 2024 given B.C. household’s strong sensitivity to high interest rates and a wind down of major capital projects in the province.
Despite softer spending and weakening construction activity, employment has held up well through spring—limiting the rise in the unemployment rate. This ran against our earlier expectations of a more rapid deterioration in the labour market and prompted us to nudge our growth forecast up from 0.7% to 0.9% in 2024.
Household consumption has been weak this year in B.C. Retail sales continue to slide from their year-ago levels in nominal per capita terms. Prospects for further rate cuts, however, point to a likely (albeit modest) turnaround later this year.
Investment has—and continues to be—the other main stressor for provincial growth. Capital investment continues to wind down in B.C. following the completion of major projects like TMX and Kitimat LNG terminal. In fact, in the last quarter of 2023 there was less than 50 cents of new construction starting for every investment dollar that ended. And though Q1 of this year didn’t report the same drop in project completions, new construction projects continued to wane.
The development pipeline appears to be relatively empty too as the soft housing market keeps developers hesitant. Businesses also seem to be waiting for deeper rate cuts or other incentives before making investment decisions.
Severe wildfires have ripped through parts of the province this spring and summer, displacing residents and interrupting activity across a range of economic sectors. While devastating for local communities affected, these disruptions are unlikely to overshadow the strength in other core industries.
The province’s prominent oil and gas industry is sustaining its recovery amid a global rebound in demand. Alongside robust construction activity, it should help drive up real GDP growth to 2.7% this year—placing Alberta at the top of our provincial growth rankings. This represents an upward revision from the 1.7% rate we projected in our June outlook.
Alberta’s wildfire season got off to a nasty start this year. The number of wildfires surpassed 1,000 in the first eight months of 2024, tracking slightly higher than the total at this time last year. The area burned, however, has been smaller—indicating a more active, but less destructive season.
What the province suffered by way of extreme weather has been more than offset by strength in other areas of the economy. Local housing markets—particularly in Calgary and Edmonton—are among the busiest in the country. In fact, year-to-date resales (+14%) are up more than any other province, growing nearly 4 times faster than the Canadian average.
Alberta’s oil industry is taking advantage of the Trans Mountain Pipeline capacity enhancement—already using up 50% of the nearly tripled capacity. With more Canadian oil reaching tidewater at an accelerated pace, we’ve seen the spread between Western Canadian Select (WCS) and Western Texas Intermediate (WTI) narrow, allowing Alberta producers to fetch higher prices for their oil and more revenues to flow into the provincial economy.
Better growing conditions are also setting the province’s agricultural industry up for a rebound, adding more strength to this provincial economy in 2024.
We remain bullish on Saskatchewan’s growth prospects this year. Global fertilizer markets have continued to rebound in 2024, as expected. That’s fueling activity in the province’s mining industry and keeping capital expenditures flowing in as large mining enterprises continue on with expansion projects.
Solid commodity markets and stronger employment growth have helped reinvigorate consumer spending too (and by a larger margin than we were anticipating). In fact, greater strength on the household side has prompted a slight upward adjustment to our 2024 growth forecast, from 1.7% to 1.9%.
Potash production has already made quite the comeback, increasing 15% on a year-to-date basis. Prices have slowly picked up since January—a trend we expect will persist over the remainder of the year as demand continues to recover.
The optimistic outlook for the province’s mining sector has had a healthy impact on its labour market too. Notwithstanding the dip in August, employment (+2.7% YTD) has been on the rise since March, with notable gains recorded from month-to-month.
Businesses plan to boost capital expenditures 14% this year—much higher than the 4.5% increase anticipated at the national level. The majority of the increase comes from the mining and oil and gas sector as construction for the Jansen potash mine barrels through peak construction in 2024.
We think the Bank of Canada’s pivot to lower interest rates will stimulate household spending and investment. Alongside neighbouring Alberta, housing markets in Saskatchewan have been among the hottest in the country. The MLS composite benchmark price index is up 6.0% since August 2023—a large divergence from the 4.2% drop recorded at the national level over the same period.
We expect economic growth this year in Manitoba to be largely on par with 2023 at 1.2%. Weakness in the utilities and agricultural industries are shaping up to be pain points, but these will be more than offset by a boost to capital expenditures and greater exploration in the mining sector.
Few surprises have unfolded in the Manitoba economy so far this year. Manufacturing activity has softened with sales growing slowing by half as both domestic and export markets dither.
Conditions in the utilities industry have also been challenging. Water levels in Lake Winnipeg and critical flows from the Saskatchewan River were much below normal over the first half of the year, straining reservoir levels which has taken a toll on hydraulic turbine power generation. Indeed, the province’s utilities industry is off to an incredibly slow start with year-to-date (January – May) electric power generation at its lowest level in over a decade.
Though these areas will likely be a drag on overall growth for the province, we think strength in other sectors of Manitoba’s well-diversified economy will be enough to keep this provincial economy growing slightly ahead of the national average this year.
Capital investments have been a notable bright spot in 2023 and over the first half of 2024, supported by another $3.1 billion from the province for upgrades and capacity enhancements for Manitoba Hydro, healthcare, and road infrastructure.
Mineral prices have also seen a modest lift—including gold and lithium (which took a nose dive at the end of last year). That’s attracting more exploration activity for the industry including two near Tanco mine.
We expect mineral prices to continue ticking higher as the market surplus continues to narrow and domestic EV battery production ramps up—offering plenty of upside growth later this year and into 2025. Renewed shipments corridors through Port of Churchill should also help as global demand continues to recover.
Economic growth in Ontario is likely to slow more than any other province this year alongside slower growth in the U.S. and weak domestic consumption and investment. We expect GDP to expand by just 0.7% this year—slightly stronger than our June forecast of 0.5%.
Nevertheless, our 2024 growth forecast for Ontario is less than half the rate of growth recorded in 2023 (1.6%, according to Statistics Canada’s preliminary estimate).
A strong end to the year for the U.S. in 2023 insulated the Ontario economy against slower domestic demand. But we don’t see the province getting that same lift in 2024. Manufacturing sales have continued to dwindle, contracting for a third consecutive quarter (q/q, seasonally adjusted) as softness U.S. demand and other Canadian jurisdictions sets in—hampering the outlook for Ontario-made goods.
Domestic household spending hasn’t made much progress either. High interest rates continue to deter businesses and consumers from making large purchases or investment, which is having a negative impact on the province’s labour market. Indeed, year-to-date layoffs have jumped significantly more in Ontario (+24%) than any other province.
Year-to-date employment growth has also nearly halved compared to the same period in 2023, amid a wind down in economic activity.
And with new international study permit caps and temporary foreign worker targets coming into play later this year, the province won’t be able to rely on the same demand boost from newcomers in the year ahead.
The weakness hitting later in 2024 has prompted us to tamp down our 2025 forecast from 1.9% to 1.6% too. Nevertheless, we still see the outlook improving beyond this year. Ontario’s automotive sector has attracted significant investment to develop EV battery manufacturing facilities, amid the ongoing transition to net zero. Alongside lower interest rates, we expect these developments to support a solid rebound in 2025.
Renewed vigour coming from external and domestic sources is setting Quebec’s economy on a mildly stronger path after it fell into a rut last year.
Export-oriented industries like aerospace, metals and transportation equipment are recording higher sales abroad this year. Construction activity—especially on the residential side—is picking up. We believe these factors, along with interest rate cuts and record planned capital investment, will prop up growth to 1.1% in 2024 from a meagre 0.2% in 2023.
Last year’s decline in the economy, in part, resulted from one-off adverse events. Historic wildfires significantly disrupted production in the resource sector in the spring. Hot and dry weather conditions also lowered water reservoir levels, causing a sharp drop in hydroelectric production. And, a major public school teachers’ strike dampened activity in the closing months of the year.
Most of these events have run their course. Homebuilding—which plunged to an eight-year low in 2023—is rebounding. Housing starts have jumped 35% in the first half of the year and lumber production is up 14%.
External demand for major Quebec-made products is growing despite a wobbly global economy. Rising exports of aircraft and parts (up 12% on a price-adjusted basis), trucks (49%), and aluminum (1%) have sustained solid activity in several manufacturing industries.
Quebec consumers are flocking back to car dealerships in growing numbers while still very budget-conscious. New vehicle sales increased 15% from last year in the first half. We expect further interest rate cuts will bolster consumer confidence and stimulate spending on a broader array of items. It will also support the gradual pick-up in the housing market that started last year.
We think record capital spending intentions this year—up a solid 8.8% from 2023—have more to contribute through the remainder of this year. The ramping up of major capital investment projects (including in the electric vehicle battery industry and green energy sector) will help the economy stay on its stronger path.
Slowing external demand for provincially manufactured products is expected to be a drag on growth this year in New Brunswick. A vibrant household sector, on the other hand, should keep the pace on par with the national average at 1.1%.
The province’s manufacturing sector has been a pain point for a few quarters now. The year-over-year change in manufacturing sales has been on a downtrend for six consecutive quarters—and with more weakness setting in in Ontario and the U.S., we don’t see a robust recovery taking shape over the back half of this year.
The province’s fishing industry is also facing headwinds. Prices for prepared and packaged seafood products have come down, weighing on industry revenues.
What’s more, the Department of Fisheries and Oceans has also lowered fishing quotas in the Bay of Fundy this season, dropping the allowable catch for Herring by more than 30% to 16,000 tonnes. Herring was a top seafood export for the province—behind lobster, crab and on par with salmon in 2022.
The household sector remains one of New Brunswick’s strongest pillars, bolstered by low debt levels and a growing headcount. But this too, is unlikely to yield the same tailwinds as observed in recent years.
Population growth likely hit an apex last year. It’s since plateaued as new international student and temporary foreign worker targets take effect—and as dust from the post-pandemic migration shakeup settles.
Nova Scotia’s economy is recovering faster than most. Though the population boom is moderating, the pace at which it’s increasing is still historically strong—attracting new development projects and investment dollars into the province. We expect growth in Nova Scotia to remain ahead of the national average, growing by 1.6% this year.
With Halifax ascending in the municipal growth ranks (population wise) and expectations for further rate cuts in the coming months, Nova Scotia has become a magnet for development. Signs of recovery in local housing markets, has pushed more development projects past the starting line this year. Growth in residential construction is set to more than offset the decline recorded in 2023, outpacing the national average fourfold so far in 2024 as housing starts rebound.
Investment dollars have also been flowing in on the non-residential side. Provincial regulators recently gave Nova Scotia Power the green light to construct a $354 million battery project, with the aim of bringing stability to the province’s energy grid amid the ongoing transition to net zero. This, alongside another $1.6 billion in capital funding from the province, should help bolster Nova Scotia’s industry after last year’s slowdown.
But things aren’t rosy everywhere. The province’s fishing industry is facing some turbulence, with the price of prepared and packaged seafood products coming down, and tighter restrictions on fishing quotas. Strength in other segments of the economy, however, are poised to offset the weaker season for Nova Scotia fisheries.
P.E.I. has been the only Canadian provincial economy to grow by more than 2.0% each year since 2021. We expect this to continue in 2024—with a rate of 2.1%–despite population growth moderating from exceptionally strong levels.
P.E.I. continues to benefit from strong demographics—boosting the availability of workers as well as demand for goods and services. Year-over-year employment growth has now outpaced all other provinces for a 5th consecutive quarter and is on track to the lead the country’s employment growth again this year.
And though population growth has moderated in recent quarters, the headcount is still increasing at a historically rapid clip—keeping aggregate spending on the rise.
On the business side, construction investment is expected to be sustained at relatively high levels this year—bolstered by development of residential units. Year-to-date residential construction investment has nearly doubled from last year as the province scrambles to expand the housing stock to accommodate the island’s growing population.
A slight increase in seeded area for potatoes and more favourable growing conditions is also setting the province up for a rebound in agricultural production.
Newfoundland and Labrador’s economy is on track to rebound this year following two consecutive years of contraction. The jobs market ramped up earlier this year, keeping the unemployment rate around a historical low—and consumer spending has made a comeback.
Despite these strides, however, we’ve made a downward adjustment to our 2024 growth forecast in light of lower than anticipated levels of oil production and weak mineral exports. We now project real GDP to expand by 1.5%—down 0.5 percentage- points from our June forecast.
The stage was set last year for oil production in the province to slowly rebound over the course of 2024. The expected return of the SeaRose floating vessel (operating in the White Rose offshore oil and gas field) in Q3 would bring all four offshore oil vessels back into production for the first time since 2019—aside from a short two-month stint at the end of last year.
Despite these developments, however, oil production in the province is still sitting at historically low levels. In fact, year-to-date production is down 5% from the first six months of 2023. The return of the SeaRose into operation could bring production levels closer to the 2023 mark but is unlikely to bring real GDP growth up to the 2.0% we were previously expecting.
Things are looking up in other segments of the economy though, keeping the prospect of an economic recovery this year well within reach.
With interest rates coming down and a brighter commodities outlook on the horizon, employment prospects have picked up—reaching their highest level on record in Q1 of this year. Employment has remained at historically high levels in the months following, keeping downward pressure on the unemployment rate. This too is sitting at historically best levels, hovering around 10%.
Tighter labour markets have meant faster growing wages and a rebound in spending among Newfoundland and Labrador households.
Retail sales growth in the province is on track to outpace the national average this year—growing 4.4% on a year-to-date basis. If spending continues at this speed (as we expect), 2024 would mark the first year since at least 2020 that Newfoundland and Labrador recorded faster retail sales growth than the Canadian average.
Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.
Robert Hogue is an Assistant Chief Economist, responsible for providing analysis and forecasts on the Canadian housing market and provincial economies.
Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook.
Claire Fan is an economist at RBC. She focuses on macroeconomic analysis and is responsible for projecting key indicators including GDP, employment and inflation for Canada and the US.
Carrie Freestone is an economist at RBC. She provides labour market analysis, and is a member of the regional analysis group, contributing to the provincial macro outlook.
Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
