(April 25 – 13:20 ET) – Slower growth in the United States and the lagged impact of last year’s rate hikes will take their toll in Canada’s regions, but the provincial economies will continue to grow this year, according to a new report by Bank of Montreal economists. The BMO report projects that growth will accelerate next year and continue through 2005.

Ontario’s high-flying economy will be the hardest hit by this year’s slowdown south of the border. Weaker demand for automotive products, machinery, electronic products and communications services will reduce the province’s economic growth in 2001 to 2.2%, down from an estimated 5.2% in 2000.

“We see this as Ontario’s speed bump,” said Tim O’Neill, chief economist, Bank of Montreal. “With its diversified economy and leadership in several high-growth sectors, the province’s longer-term prospects remain bright.”

Alberta is projected to be Canada’s growth leader throughout the 2001 to 2005 forecast period. The province is currently enjoying robust energy exploration and development. An emerging strength in communications services and electronic and electrical products as well as healthy government finances are also expected to bolster Alberta’s growth throughout the forecast period.

The report suggests that Newfoundland and Nova Scotia should also enjoy energy-supported growth that is expected to exceed the national average this year.

At the other end of the spectrum are provinces which have been undercut by the slowdown south of the border.

British Columbia enjoyed stronger growth last year, but weakness in the non-energy resource sectors will cramp economic expansion this year. Over the medium term, Bank of Montreal economists project growth in B.C. to recover to 3.3%, just below the national average.

Quebec will not be hit as hard as Ontario by the U.S. slowdown, but it will not be immune. Even so, the report projects Quebec to outpace the national economy this year, and to largely keep pace over the medium term.

In Saskatchewan and Manitoba, the importance of agri-business to their respective economies will provide a mixed blessing during the forecast period. It will help insulate them from the slowdowns in the more cyclical sectors, but the continuing weakness in crop prices will remain a drag on farm incomes.

“The inventories overhanging the global grain and oilseeds markets mean that prices will not firm quickly,” said. O’Neill. “Fortunately, Saskatchewan is benefiting from the current strength in energy prices, and governments in both provinces have their finances in good shape.”

Both New Brunswick and Prince Edward Island are likely to experience a much slower pace of expansion this year, though both economies should move onto a moderately stronger growth track in 2002 and beyond.

Bank of Montreal economists have based their regional outlook on a projection that the U.S. economy will rebound with 3% growth in the second half of this year and sustain annual growth in the range of 3% to 3.5% over the 2002 to 2005 period. Canada’s economic growth is expected to rebound from 2.7% this year to its long-run potential of 3.5% over the next four years.