TORONTO, December 12, 2018 – Two of Canada’s western provinces are expected to take diverging paths in 2019, according to the latest RBC Economic Outlook Report.
Oil production cuts in response to pipeline constraints and volatile oil and gas revenues will contribute to a slow-down in growth for Alberta next year. RBC projects Alberta’s growth to decline to 1.5 per cent in 2019, from 2.4 per cent this year.
“The oil production cut could lower GDP growth in Alberta by as much as a percentage point relative to prior assumptions,” said Craig Wright, Senior Vice-President and Chief Economist, RBC. “However, the impact will depend on how prices and inventories respond to the cuts.”
Meanwhile, British Columbia’s economy is expected to thrive in 2019. LNG Canada’s $40 billion natural gas project will provide a significant boost to the province’s economy. RBC Economics forecasts 2.6 per cent growth in 2019, jumping from 1.9 per cent in the previous outlook. The higher pace of growth is likely to continue into 2020.
“Given that LNG Canada has indicated that it will spend $18 billion in Canada in the first five-year phase, mostly in B.C, we expect this activity will provide a shot in the arm to the provincial economy,” said Wright. “However, this also has the potential to cause further strain on a tight labour market.”
With record-low unemployment levels in B.C, there isn’t much local labour remaining. The shortages could put upward pressure on wages and businesses will likely look
to international and interprovincial immigration to fill the gap.
Canada to face challenges in 2019
Slumping oil prices and higher interest rates weighed heavily on Canada’s economy in the latter part of 2018 and should have a similar effect into next year. Regulatory changes and rising rates will weigh on household spending 2019. While modest increases in investment, outside the energy sector, and exports will be accompanied by another year of government spending. RBC Economics forecasts Canada’s GDP growth to decrease by 0.2 percentage points to 1.7 per cent in 2019.
Outside of Canada
Global expansion to continue, but downside risks are growing
The global economy is expected to face significant headwinds in 2019. With the era of ultra-low interest rates having seemingly come to an end, along with an unsettled political backdrop, the momentum has shifted downward. RBC Economics forecasts the global economy to expand by 3.7 per cent in 2019, matching the pace of the previous two years.
US economy continues to carry substantial momentum
Stronger consumer spending and a rebound in investment that was aided by tax cuts gave the US a significant lift over the other G-7 countries in 2018. RBC Economics expects the US economy to expand at an above-potential pace again in 2019. However, tighter financial conditions will likely cool consumer spending and business investment in the coming year.
After tariffs were placed on Chinese goods, as well as steel and aluminum from several countries, it is expected that growth of both exports and imports will slow in 2019. The strong US dollar will also weigh heavily on demand for US exports. And while costs associated with these tariffs will be initially absorbed by businesses, they will likely filter into consumer prices the longer they remain in place.
A complete copy of the RBC Economic and Financial Market Outlook is now available. A separate RBC Economics Provincial Outlook assesses the provinces according to economic and employment growth, unemployment rates, retail sales, housing starts and consumer price indices.
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