A combination of a soaring Canadian dollar and surging world commodity prices since early 2003 have created a sizeable transfer of real output and income to the North and West from other parts of the country, say TD economists.

The bank released its latest regional economic forecast today.

“We expect to see some narrowing of the recent growth gap over the next two years, in part due to some simmering down on the commodity front. At the same time, given the differing speeds of momentum in early 2005, and only a gradual change in the economic landscape forecast, this convergence will not likely take place to any meaningful degree until 2006,” said Derek Burleton, senior economist at TD Bank.

The most important economic development driving the variation in regional performances recently is the Canadian dollar, which has surged by nearly 30% since early 2003, says TD.

Although all parts of Canada are feeling some negative impact, “Ontario and Quebec stand out as the economies experiencing the greatest currency-related pressure,” said Burleton.

TD says Atlantic Canada has been faring even worse on average. In addition to a weakening trade performance, the region has been recently experiencing a slowdown in the number of major development projects that have been driving a force in the area’s economy since the late 1990s.

Commodity prices have been a major offset to the stronger dollar for economies in the North and West.

In the Northwest Territories, where activities in diamonds, oil and gas and other commodities have lifted its commodity exposure to the highest in the land, economic growth has been running well ahead of the pack, followed by Newfoundland & Labrador, Alberta, Saskatchewan and British Columbia.

TD says the boom in world commodity prices have also generated record corporate profits, spurred job creation and personal incomes, and led to booming tax and royalty revenues. “The surge in overall income corporate, household and government incomes, rather than the gap in term of real GDP growth, provides the best explanation to why the recent economic times have felt much better in the commodity-based markets, notably in the West,” said Burleton.

However, TD says much of the growth gap is likely to be eliminated. But, this development is likely to reflect a strengthening in prospects in central and Atlantic Canada rather than any major slowdown in the North and West.

Even with the shift in the economic tide eastward going forward, however, the recent growth leaders – namely, the NWT, Newfoundland & Labrador, Alberta, Saskatchewan and B.C. – will finish next year well in front in terms of gains enjoyed since the start of the current currency and commodity price run in 2003. In particular, the NWT and Alberta are poised to turn in stunning increases in per-capita income of more than five and two times the national average increase, respectively, during 2003-06, TD says.