B.C. looks relatively attractive along with Atlantic Canada when thinking about investing at the provincial level
Author of the article:
By David Rosenberg and Julia Wendling, David Rosenberg
Publishing date:
Feb 02, 2022 • 10 hours ago • 4 minute read • 17 Comments
A man walking a dog checks his phone as ice floes build up on the Fraser River in New Westminster, B.C. Photo by THE CANADIAN PRESS/Darryl Dyck files Canadian gross domestic product has nearly reattained pre-pandemic levels and employment across most provinces has retraced the COVID-19-induced losses, so it is safe to say the economy has secured a fairly successful year under the belt, at least in the context of the first global pandemic in more than a century.
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But the emergence and rapid spread of the omicron variant has served as a stark reminder that the virus’ impacts are set to linger well into 2022 (and potentially beyond) and continue to cast a cloud of uncertainty over the Canadian recovery story, despite the worst of the COVID-19 pandemic being firmly in the rear-view mirror.
With the new variant throwing a spanner in the works, we thought it was time to re-evaluate the resiliency of the provincial economic recoveries by assessing current vaccination rates, labour market health and interprovincial migratory patterns to help investors discern which areas are set to perform best over the coming year.
We’ve been saying for quite some time that the path of each region’s recovery will hinge primarily on its ability to contain the virus and achieve the elusive “herd immunity.” As such, vaccination rates remain a crucial indicator for our provincial outlook into 2022. And while Canada on the whole scores well relative to its peers on this front (with 78 per cent of the population fully vaccinated versus 63 per cent in the United States), there are substantial divergences among provinces. Much of Atlantic Canada screens favourably based on this measure, with British Columbia (78.5 per cent) and Quebec (78.3 per cent) not far behind. On the other hand, Ontario (76.7 per cent) and Manitoba (74.9 per cent) rank in the middle of the pack while the rest of the Prairies as well as much of Northern Canada are lagging the national average.
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The key thing here is that low vaccination rates could have knock-on effects on the duration and sustainability of each province’s labour market recovery, and, thus, GDP growth overall. There’s mounting evidence that provinces with lower vaccination rates and yet looser COVID-19 restrictions are struggling despite being more open as residents are self-selecting to stay at home and reduce exposure.
More On This Topic David Rosenberg: Finding opportunities in tech despite rising yields David Rosenberg: You don’t need a recession for investors to have a tough year David Rosenberg: NFTs may be nifty, but not when it comes to investing in them Saskatchewan serves as a prime example here. The province’s stringency index, at 28, is the lowest in the country, its labour market recovery has been the weakest, with only 94-per-cent retracement in employment levels and 75-per-cent retracement for the participation rate compared to 108 per cent and 96 per cent, respectively, for the nation overall. Conversely, Ontario and B.C. are leading the pack as high vaccination rates did their part to boost the re-opening trade in these regions (new lockdown measures have since been imposed to reduce the spread of Omicron but are set to expire soon).
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Article content Another key aspect to consider is interprovincial migratory flows, particularly when it comes to assessing the outlook for the bubbly real estate market. B.C. (+30,323 people from Q1 2021 to Q3 2021) and Atlantic Canada (+17,794) look particularly attractive on this front. On the flip side, Ontario (-24,636) and the Prairies (-23,192) are the laggards. It’s well-known that housing prices have skyrocketed on the whole throughout the pandemic, but these migratory trends do have obvious implications for future residential real estate growth (and related services including construction, home improvement, etc.), particularly on the East Coast where affordability isn’t nearly as stretched as it is in B.C. and Ontario.
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Article content Taking all of these factors into account (vaccination rates, employment retracement, participation rate retracement, net interprovincial migration), we’ve ranked the provinces in order of least vulnerable to most. Unsurprisingly, the top-ranked province is B.C., which was given a big boost from sporting the highest net domestic migration level among all provinces and ranking second on both employment and participation rate retracement. However, a near-term setback is in the offing for the province as the floods at the end of last year held back several key industries (including transportation services and agriculture) while supply chain shortages continue to weigh on the manufacturing sector (as is the case nationwide).
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Article content Much of Atlantic Canada (Nova Scotia, Newfoundland and Labrador, Prince Edward Island) also screened well, buoyed predominantly by high vaccination rates and strong interprovincial migration. Ontario ranked in the middle of the pack, weighed down by a vast migration outflow and a lower vaccination rate than the national average despite an impressive labour market recovery. The Prairies (Alberta, Manitoba and Saskatchewan) round out the bottom of our list and are the most susceptible to a COVID-19-induced pullback based on these measures.
Bottom line: there are a multitude of additional factors that could be considered, including increased incidence of climate disasters (such as the recent floods in B.C. or droughts across the Prairies in mid-2021), inflation uncertainty and ongoing supply chain shortages, but the success of vaccination campaigns, employment recoveries and migration patterns that have emerged through the pandemic will play a prominent role in 2022. When thinking about investing at the provincial level, B.C. looks relatively attractive along with Atlantic Canada, both of which are likely to post more sustainable recoveries. Meanwhile, look for Ontario and the Prairies to lag behind.
Financial Post
David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. Julia Wendling is an economist there. You can sign up for a free, one-month trial on Rosenberg’s website.
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