Canada’s economic performance remains tilted westward through 2008, but strong domestic-led activity will sustain growth across all provinces, according to Scotia Economics’ latest Provincial Trends report.

“Canadian real GDP growth is expected to average around 2.5% in 2007 and 2008, roughly half a percentage point below the average of the previous three years,” says David Hamilton, economist, Bank of Nova Scotia. “While this should largely mirror both the slowdown in the U.S. economy and the growth-robbing shortage of labour and selected materials, it obscures three key trends that are continuing to dominate Canada’s underlying performance.”

“First, the pace of economic activity remains two to three times greater in the resource-rich regions in the west, north and east,” adds Hamilton. Export-sensitive manufacturing-centric provinces in Central Canada remain constrained, not only by the U.S. slowdown, but by the loss of competitiveness associated with increased foreign competition and an even stronger Canadian dollar.

Second, in all provinces, domestic-led activity remains fairly robust, led by consumer spending, non-residential construction, and services. “Even in Ontario, where average output growth this year and next of 1.9% will lag the national average for a fourth consecutive year, final domestic demand is expected to advance at close to a three% rate,” says Hamilton.

And thirdly, infrastructure spending will remain a key driver of domestic growth across the nation. Besides the much-needed outlays in health and education, there is a renewed push to upgrade transportation networks and ports, in addition to new green initiatives.

Regionally, growth in the Western provinces should continue to pace the national advance. Newfoundland & Labrador could best the other provinces this year as its mining sector recovers, but is expected to cool off in 2008. On average, Alberta and B.C. remain at the top of the pack, boosted by mining and oil and gas extraction, while Ontario and Quebec face further restructuring in their large manufacturing sectors.