Western Canada will be “in the driver’s seat” leading economic growth in Canada this year, TD Bank Financial Group says. Growth in both Calgary and Edmonton is expected to be greater than 4%.

In its regional economic outlook, the bank said the continued recovery in the U.S., together with good consumer spending in Canada will fuel the Canadian economy as a whole. However, the further impact of the rising C$, a moderation in homebuilding, and a shift in the government fiscal pendulum back to restraint will combine to hold back growth in 2004 to a “less-than-stellar” 2.8 % on average, said Derek Burleton, senior economist at TD Bank.

“The western economies appear to be in the best position to emerge with the least collateral damage from these negative forces,” Burleton said.

Oil and gas activity is expected to drive growth in the West, while diamond development will keep the
economy of the north barreling ahead, Burleton said. But the ongoing softwood lumber dispute and the impact of Mad Cow disease on Canadian cattle producers and related businesses will temper growth.

Burleton says the major challenge facing regional economies in 2004 will be the fallout from the surging C$. “For the more western and Atlantic regions, which have above-average resource reliance, the sharp gains in world commodity prices recorded over the past 12-24 months are helping to cushion the blow from the currency’s rise. But, in the manufacturing-intensive region of central Canada, producers have been hit on two fronts – the sharp loss in competitiveness vis-à-vis the U.S. and the jump in commodity prices, which has increased their input costs.”

Western Canadian markets are most likely to weather the major retrenchment in housing markets across the country, the bank says.

The report says that while public finances remain in easonably good shape, many provincial governments are feeling cash-constrained. “The federal government’s once-sizeable surplus has all but evaporated, and provincial governments are either teetering on the brink of deficit, or are already sitting in red ink.”

Worst off is Newfoundland and Labrador, which announced recently that it is on track to record a budget deficit of $828 million in fiscal 2003-04, 5% of GDP. British Columbia, Ontario, and P.E.I. will post deficits in the order of 1%-1.5% of GDP, while several other provinces – including Quebec and Nova Scotia – are at risk of posting smaller shortfalls.

Of the largest 16 metropolitan markets in terms of growth prospects for 2004, Calgary, Edmonton, Toronto, Vancouver, Halifax and Regina are expected to deliver an above average
performance in 2004. Ottawa, Saskatoon, Victoria, and Montreal are expected to roughly match the national results, while Winnipeg, Hamilton, Quebec City, Saint John, Kitchener-Waterloo and St. John’s weigh in with a below average performance.