Growing consumer optimism in Ontario will anchor a 2014 Canadian economic rebound as the nation’s most-populous province closes a gap with commodity-rich Alberta.
Ontario has recorded the biggest increase in confidence over the past four months, according to the Bloomberg Nanos Canadian Confidence Index, while consumer sentiment in the western prairie provinces has fallen. A separate gauge of purchasing managers by Royal Bank of Canada also shows Ontario leading gains since August.
Home to 44 percent of Canada’s manufacturing jobs, Ontario is poised to be the biggest beneficiary of accelerating growth in the U.S. and a declining Canadian dollar, while weakness in commodity prices has weighed on provinces such as Alberta. Bank of Montreal and Royal Bank project Ontario will record the biggest jump in growth among provinces in 2014.
The positive outlook for Ontario “is largely premised on the assumption that we are going to see exports make more of a contribution to growth and that will result in more strength in the manufacturing sector,” Paul Ferley, assistant chief economist at Royal Bank, said in a telephone interview.
Improving sentiment in central Canada and waning optimism in the west kept the national gauge little changed over the past four months. The weekly sentiment measure for Canada rose to 58.8 for the period ended Jan. 3 from 58.4 the previous week. It has averaged 58.6 since the end of August.
The weekly Nanos data are based on phone interviews with 1,000 people, using a four-week rolling average of 250 respondents. The aggregate results are accurate within 3.1 percentage points.
Finance Minister Jim Flaherty said yesterday a depreciating currency will help the nation’s factories.
The Canadian dollar fell 0.3 percent to C$1.0668 against its U.S. counterpart at 11:33 a.m. in Toronto. It lost 6.6 percent last year against the greenback for the worst performance since the 18 percent drop in 2008. One Canadian dollar buys 93.76 U.S. cents.
“The dollar in the nineties somewhere is good for manufacturing,” Flaherty said in an interview broadcast on CTV Television. Canada’s currency bought $1.03 as recently as September 2012.
“There occurred only marginal movement in the index over the holiday season,” said Nik Nanos, chairman of Ottawa-based Nanos Research Group. “We expect in the coming weeks for the non-holiday trend to emerge as Canadians get back to a regular work environment.”
The weekly sentiment measure for Ontario was at 60.7 at the start of this year, up from 55.4 at the end of August. In Canada’s three prairie provinces -- Alberta, Saskatchewan and Manitoba -- the measure fell to 61.4 from 63.1 over that time amid waning prices for commodities. The 0.7 point difference between confidence gauges for Ontario and the prairie provinces is the lowest since June.
The Bank of Canada commodity price index is down about 5 percent since touching a 2013 high on July 17. Western Canada Select Oil has declined almost 19 percent in that period.
Quebec, also a manufacturing-heavy province, has seen its confidence gauge rise to 57.7 from 55.5 at the end of August.
Ontario’s economy will grow at a 2.6 percent pace in 2014, up from 1.3 percent projected for 2013, Royal Bank said. Faster growth in Ontario will boost Canada’s recovery to a 2.6 percent pace in 2014 from 1.7 percent.
The Bank of Montreal projects growth in Ontario of 2.3 percent this year from 1.4 percent in 2013, with Canadian growth accelerating to 2.3 percent.
A recovering U.S. economy will be the primary catalyst for Ontario. Growth in the U.S. is expected to accelerate to 2.6 percent in 2014 and 3 percent in 2015, from 1.7 percent last year, according to median estimates of economists surveyed by Bloomberg.
Exports will add 1 percentage point to growth in 2014 and 1.5 percentage points in 2015, after an anemic 0.3 percentage point contribution last year, the Bank of Canada forecast in October.
There is some evidence exports and manufacturing has already begun to strengthen. Exports have grown by a monthly average of 0.8 percent since May, about quadruple the pace of the previous 12 months. The latest gross domestic product data show factory production rising by 1.3 percent in October and 1.2 percent in September, compared with 0.3 percent for the whole economy.
Other surveys show signs of economic optimism in Ontario. The regional breakdown of the RBC Canadian Manufacturing Purchasing Managers Index shows Ontario leading gains since August, with the gauge for Canada’s largest province rising to 54.6 from 50.2 four months earlier.
“That confidence measure for Ontario has been showing pretty steady improvement since the summer and could be a sense people are becoming more confident about the U.S. economy,” Ferley said.
Bloomberg Nanos’s confidence index has two sub-indexes: the Pocketbook Index, based on survey responses to questions about personal finances and job security, and the Expectations Index, based on surveys about the outlook for the economy and real-estate prices.
The Pocketbook Index fell to 59.9 from 60.2 last week. The Expectations Index increased to 57.7 from 56.6, according to the Nanos report.