Several provinces face the risk of a recession next year, according to a BMO Capital Markets economist, as rising interest rates continue to weigh on real estate markets and growth prospects weaken across Canada.
Economic growth in Canada is expected to slow to zero in 2023 following 3.2 per cent growth this year, BMO Capital Markets senior economist Robert Kavcic wrote in a research note this week, “with the risk of a downturn most acute around the turn of the year.” Canada's three most populous provinces are expected to see real GDP contract this year, as a slowdown in the housing market weighs on growth.
“The Canadian economy is slowing, and conditions have set the stage for a more pronounced downturn into 2023,” Kavcic wrote in the research note.
Provinces in focus
“Growth prospects are also weakening across the provincial landscape, with a number of regions at risk of recession around the turn of the year. Negative prints are likely in British Columbia, Ontario and Quebec in 2023, with the real estate downturn playing a significant role.”
Kavcic said Ontario's economic growth, which is expected to slow to 2.9 per cent this year, will contract 0.4 per cent in 2023. While the job market in Ontario has been strong, Kavcic said "momentum looks to be fading."
British Columbia is the province where residential investment makes up the highest portion of provincial GDP in the country at 9.5 per cent. The province will also see real GDP dip into negative territory next year, according to Kavcic. BMO expects growth to hit 3 per cent this year in B.C., before contracting 0.3 per cent in 2023.
Quebec is also expected to see real GDP contract by 0.1 per cent in 2023, down from growth of 3.4 per cent in 2022, which Kavcic said is "consistent with a broad weakening across the country."
While Ontario, B.C. and Quebec face real GDP contractions, other provinces are expected to see more moderate slowdowns in economic growth. Alberta's real GDP growth is expected to hit 4.3 per cent in 2022 before slowing to 1.4 per cent in 2023. Saskatchewan's economy is expected to grow 5.5 per cent this year, and 1 per cent in 2023.
"Alberta and Saskatchewan should face much less downside in residential investment, partly because those markets had already slumped for a number of years before the pandemic boom, and therefore never accumulated much froth," Kavcic said.
"Oil prices, while well off their highs, continue to support local activity, incomes and government revenues. Growth will likely slow in the region but remain in the low-1 per cent range and outperform the national average."
In Atlantic Canada, BMO expects Newfoundland and Labrador will see a growth rate of 1.2 per cent in 2023 (compared to 0.3 per cent in 2022) while Prince Edward Island is expected to report real GDP of 1.3 per cent (compared to 1.5 per cent in 2022). New Brunswick and Nova Scotia's growth rate in 2023 is expected to hit 0.8 per cent and 1 per cent, respectively (down from 1.8 per cent and 1.6 per cent in 2022, respectively).
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.