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TORONTO, ONTARIO--(Marketwire - Oct. 12, 2011) - Canadian economic growth has moderated amid global financial market uncertainty and temporary shocks including the Japanese earthquake and Alberta wildfires, according to the Provincial Monitor report released today by BMO Capital Markets Economics. But the commodity-based economies of the four western provinces will see them lead the way in growth in 2012.

"Real GDP is expected to grow 2.2 per cent this year, before cooling further to a 1.8 per cent pace in 2012," said Doug Porter, Deputy Chief Economist, BMO Capital Markets. "Growth expectations in the provinces have been downgraded across the country since mid-year, although a clear divide persists between resource and non-resource provinces. While commodity prices have corrected from early-year highs, they continue to support this trend."

Mr. Porter also noted that fiscal restraint has begun to set in among the provinces, with Central and Atlantic Canada likely to feel the biggest drag due to relatively large deficits and little boost from commodity revenues. Plus, the sluggish pace of U.S. growth will weigh more heavily on these relatively manufacturing-heavy regions.

"In this environment of global economic uncertainty, it's more important than ever for business owners to enhance their resiliency through investing in their companies and seeking new markets," said Cathy Pin, Vice-President, BMO Commercial Banking. "Our business surveys have shown that Canadian entrepreneurs remain optimistic, and want clear advice and practical solutions on how to upgrade their infrastructure and retool their business processes."

Western Canada

Commodity-sector investment is again fuelling growth in Western Canada. "Despite being tripped up by spring wildfires, raw bitumen production in Alberta was up nearly 9 per cent year-over-year in the first half of the year, and will grow to more than 2 million barrels per day in the next two years, supporting nation-leading real GDP growth," said Mr. Porter. "Indeed, private-sector job growth has accelerated to more than 8 per cent year-over-year, blistering past the national average and again spurring inward migration from other provinces."

In British Columbia, both domestic demand and exports to faster-growing Asia will support above average growth, but still-depressed U.S. housing, and a moderating domestic real estate market should keep growth in check. Saskatchewan and Manitoba have again been dealt a tough hand by Mother Nature, with extremely wet spring weather hurting crop production. "Still, underlying trends in these provinces remain solid, with strong resource investment and the lowest jobless rates in Canada supporting above-average growth," explained Mr. Porter.

Central Canada

In Ontario and Quebec, fiscal restraint is beginning to set in and, along with sluggish U.S. export demand, should hold growth to a sub-2 per cent pace in 2012. Ontario auto production fell sharply in April as it was negatively impacted by supply-chain issues stemming from the Japanese earthquake/tsunami, and has since staged only a partial comeback. "While temporary disruptions in that sector will fade, the export backdrop is not favourable in a weak U.S. growth environment, even though the recent weakness seen in the loonie could moderate the blow somewhat," said Mr. Porter.

Fiscal restraint and a rising tax burden will also hold back growth in Quebec, with another 1 percentage-point QST hike coming in January, the health contribution tax rising again this year, and gradual increases in the QPP contribution rate starting in 2012.

Atlantic Canada

With U.S. demand weakening, trade is unlikely to add much to growth, and the manufacturing and export-heavy provinces in Atlantic Canada should see growth below 2 per cent through 2012. "The shift from fiscal stimulus to restraint will cut into capital spending, which was a significant boost to the region in recent years," stated Mr. Porter. "But Newfoundland & Labrador is an exception, as it is expected to grow a robust 3.5 per cent this year, thanks to energy-sector investment and a continued commitment to aggressive capital spending by the Province. But, that pace will also cool by 2012 as some projects begin to wind down."

The full Provincial Monitor report can be downloaded at bmocm.com/economics.