Alberta is expected to be Canada’s top economic performer this year with the strongest growth rate in a decade at 6.3%, according to an economic outlook from Royal Bank.

Alberta’s growth will then slip to 4.5% in 2007, said the outlook report released today.

“Alberta currently tops the rest of the country with the lowest unemployment rate and the fastest trend growth in retail sales, new home construction, residential building permits for future construction and manufacturing shipments,” said Craig Wright, RBC’s chief economist.

For the overall Canadian economy, RBC has revised its 2006 growth forecasts downward, with Ontario being sharply downgraded to last place among the provinces.

Alberta and British Columbia are now in first and second place, respectively, bumping Newfoundland and Labrador to third place for growth in 2006.

Canada’s economy is expected to grow by 2.8% in 2006 and 2.7% in 2007, But Ontario’s economic outlook has weakened, with expected growth of 1.5% in 2006 and two% in 2007, according the forecast.

“Ontario’s economic growth forecast has weakened and is facing further downside risks,” said Wright. “The economy isn’t far from being at a standstill, despite the drop in natural gas and oil prices, which should both serve to stimulate growth.”

Much of Ontario’s weakness was already evident in the first half of 2006, and more numbers on growth in retail sales, housing starts, building permits, housing resale activity, job growth, manufacturing shipments and exports, continue to underperform.

According to the report, the U.S. housing market has soured further and Central Canada’s has joined this correction, although not to the same magnitude.

“Ontario’s housing markets will be a drag on growth this year and next, with resale prices expected to modestly soften,” Royal Bank said.

Furthermore, while Ontario’s manufacturing sector should emerge much stronger towards the end of this decade, it will remain weak this year and next.

“In addition, Ontario’s auto sector awaits new production runs, thanks to recent investment announcements with production expected to stabilize in 2008. However, the sector faces a flat outlook for the remainder of the decade.

Looking beyond the Alberta’s energy patch, agriculture is also contributing to that province’s growth, with a greater likelihood that 2006 will see a higher quality crop and better crop prices than last year.

According to the report, inflationary bottlenecks have grown in recent months. Wages are now more than eight% higher than a year ago, and Alberta’s rate of inflation now tops the country, up almost five% from a year ago. These are clear signs of overheating against a backdrop of labour and material shortages.

“For 2007, despite risks, we think Alberta will maintain the lowest unemployment rate, the fastest income growth, the strongest growth in retail sales, and the fastest growing workforce of any province in the land,” said Wright.