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Improved Economic Outlook for Many Canadian Mid-Sized Cities

Jul 27, 2017
Conference Board of Canada
But Canadian mid-sized cities outside Alberta will not see growth above 2 per cent

OTTAWA, July 27, 2017 /CNW/ - In line with recovering oil prices, economic growth in Medicine Hat and Red Deer is expected to return to positive territory this year. In fact, with real GDP growth of 2.7 per cent in 2017, Medicine Hat is anticipated to post the strongest economic growth among the eight mid-sized cities included in The Conference Board of Canada's latest Mid-Sized Cities Outlook. Meanwhile, Lethbridge—the other Alberta city included in this report—will continue to enjoy steady economic growth.

The outlook is also generally positive for the cities located outside Alberta. Of the five remaining mid-sized cities included in this outlook—Brandon, Prince George, Timmins, Sault Ste. Marie, and Miramichi—all except Prince George will also see economic activity improve in 2017. And even though growth is poised to slow in Prince George, the economy is still projected to expand at a decent 1.5 per cent clip. On a negative note, all five of these cities are on track to see economic growth come in below 2 per cent this year, with Miramichi and Sault Ste. Marie expected to see growth come in below 1 per cent.

"The economies of Red Deer and Medicine Hat, with their close ties to the oil and gas sector, were hard hit by the commodities price crash. Lethbridge's broad-based economy, however, bucked the provincial trend and managed to emerge unscathed over the last two years," said Alan Arcand, Associate Director, Centre for Municipal Studies, The Conference Board of Canada. "This year, these three Alberta mid-sized cities will see many of their key industries benefit from recovering oil prices, the low Canadian dollar, and a healthy U.S. economy."

Medicine Hat
Medicine Hat was hit hard by the oil price collapse, with total output falling in both 2015 and 2016. Although oil and gas prices are expected to gradually rise over the coming years, they will remain well below their peak levels. This suggests that the economic recovery in Medicine Hat and in other energy-oriented cities will be moderate at best. Real GDP in Medicine Hat is anticipated to expand by 2.7 per cent in 2017 and by 2.0 per cent next year. Rising energy prices will drive output gains of 3.9 per cent in the primary and utilities industry, which includes oil and gas extraction, and will also spark turnarounds in the manufacturing and transportation and warehousing industries this year and next. Employment is poised to rebound this year following two straight annual declines.

Red Deer
Red Deer's economy also suffered back-to-back declines in 2015 and 2016 due to the drop in oil and cattle prices. The local economy will be on more solid footing this year and next with real GDP poised to rebound by 2.0 per cent this year and 2.2 per cent in 2018. Along with primary and utilities sector, Red Deer's construction and manufacturing industries will both benefit from the gradual recovery in oil prices. The local construction sector was the hardest hit by the downturn in oil prices, as both residential and non-residential investment dried up, contracting by an annual average pace of 17.6 per cent over the last two years. This year, the sector is anticipated to grow by 2.9 per cent, as investor confidence starts to improve. Job growth is poised to resume in Red Deer this year, following a record 8.4 per cent drop in 2016.

Driven more by agriculture and food processing than by oil, Lethbridge's diversified economy will continue to enjoy steady growth this year with an anticipated 2.4 per cent rise in GDP. Although employment is set to contract 11.6 per cent this year and rise only 1.0 per cent next year, the number of jobs in the region remains historically high following an unsustainable increase in 2015. Lethbridge's primary and utilities sector focuses on cattle production. This industry is now confronting a soft market and weak pricing, largely due to rising global supplies of beef and other meat products, which will limit growth over the next two years. That said, output growth in the primary and utilities sector is forecast average a decent 2.3 per cent annually this year and next. At the same time, Lethbridge's construction and manufacturing sectors are set to receive a boost from Cavendish Farms new $350 million potato processing plant, which will more than double the firm's local production. Aggregate output in the services sector is forecast to climb 2.2 per cent per year over 2017-18, led by solid gains in wholesale and retail trade and in finance, insurance and real estate.

Brandon's economy is expected to post average annual growth of 1.9 per cent in 2017-2018, up from a 1.4 per cent gain last year. Output in the city's manufacturing sector is expected to advance by 1.7 per cent this year thanks in part to regulatory changes by the province to stimulate Manitoba's hog production and a major contract win in the steel manufacturing sector. At the same time, strong population growth and healthy gains in employment and personal income will see Brandon's residential investment sector pick up steam. Meanwhile, the non-residential investment sector will be boosted by several large construction projects, including further progress on the First Street Bridge replacement. The services-producing industries are set to build on last year's 2.0 per cent GDP increase with growth of 2.2 per cent in 2017. The main contributors will be finance, insurance and real estate, as well as non-commercial services and public administration. The sound economy is expected to generate an average of 610 net new jobs per year over 2017-18, putting downward pressure on the unemployment rate.

Prince George
After averaging gains of 2.2 per cent annually between 2012 and 2016, Prince George's economic growth is expected to moderate to a still decent 1.5 per cent this year. A healthy U.S. economy and recovering housing market will increase demand for B.C. wood products, supporting the local primary and utilities industry. However, the ongoing negative impact of the mountain pine beetle on wood supply, the imposition of tariffs on softwood lumber entering the U.S., and a struggling mining sector will keep the industry's growth in check. The finance, insurance and real estate industry will continue to benefit from a strong housing market, making it Prince George's fastest-growing industry in 2017. We expect job growth to come in at a vigorous 5 per cent this year, bouncing back from a big drop in 2015 and a tepid gain in 2016.

The Timmins economy remains on a path of stable and moderate growth. Real GDP increased by 1.3 per cent in 2016 and is forecast to average slightly stronger growth of 1.5 per cent over 2017-18. Output in both the manufacturing and the primary and utilities sectors will rise at a healthy pace this year, boosted by a low Canadian dollar, recovering gold prices, and several positive developments in the mining sector. While the local workforce has not shared in recent economic gains, employment is forecast to pick up this year. This turnaround will support household consumption and thus help spur a 1.8 per cent increase in wholesale and retail trade output in 2017. The unemployment rate is projected to fall from 7 per cent in 2017 to 6.2 per cent by 2018.

Sault Ste. Marie
Sault Ste. Marie's real GDP growth is expected to come in at 0.6 per cent in 2017 and 0.9 per cent in 2018—a welcome change from the flat readings of the last two years. The construction sector is on track to return to positive output growth this year, following contractions in five of the past six years. Things are also looking up for the manufacturing sector, which has struggled since 2012. Output is forecast to stabilize this year and grow by 0.6 per cent in 2018. Meanwhile, decent performances in wholesale and retail trade, and in finance, insurance and real estate will drive moderate services activity. As such, employment is projected to grow by 2.8 per cent this year, though there are downside risks to this outlook.

Although Miramichi's economy struggled mightily for a decade from 2005 to 2014, its overall economic outlook is relatively upbeat, as a modest recovery that started in 2015 is expected to continue. Real GDP is forecast to expand by 0.6 per cent this year and 0.7 per cent in 2018. A relatively good performance by the services industry, which generates nearly 90 per cent of the area's total economic activity, kept the economy afloat last year and should continue to do so this year and next. In particular, an aging population will drive demand for health care services, while modest employment and income gains will provide a lift to wholesale and retail trade. On the goods side of the economy, the construction sector is also poised to grow, but this will be more than offset by persistent declines in manufacturing and in the primary and utilities industry.

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SOURCE Conference Board of Canada   

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