TORONTO, Feb. 21 /CNW/ - Weakness in Ontario's key export-oriented
sectors, particularly manufacturing and forestry, will limit output growth to
1.4 per cent in 2008, with strength largely emanating from the buoyant
construction and service sectors, according to Scotia Economics' latest
Provincial Trends report.
    "A strong Canadian dollar, high oil prices and a weakening U.S. economy
are taking their toll on the province's large manufacturing sector," says
David Hamilton, Economist, Scotiabank. "Ontario's vast auto sector will
continue to cut back vehicle output and parts shipments in 2008, due to
softening U.S. demand and continued industry restructuring. However,
employment gains in the large service sector should help counter further
losses in the manufacturing sector, supporting moderate consumer spending
growth.
    "Public and private non-residential construction should contribute
significantly in 2008," adds Mr. Hamilton. "Over the next few years, public
spending will benefit from ambitious infrastructure plans. Private spending
will support office and hotel developments in addition to a number of mining
projects."
    According to the report, a combination of factors, heightened foreign
competition, a soaring loonie, and more recently, a weakening U.S. economy,
are restraining Canada's overall economic performance, with the manufacturing
sector bearing the brunt of the slowdown. National output growth is expected
to decelerate from an average of 2.6 per cent in 2007 to 1.9 per cent in 2008.
    At the same time, however, non-residential construction and ongoing
strength in service industries are providing enough forward momentum across
the provinces to offset these headwinds. Construction activity, in particular,
is receiving solid support from both private and public sectors, mainly for
spending on infrastructure.
    Federal, provincial and municipal governments have announced significant
multi-year infrastructure investments. Faced not only with the need to upgrade
roads, bridges and water treatment systems, Canada is also challenged by a
growing economy and population base. At the provincial level, British
Columbia, Ontario and Quebec propose ambitious longer-term transit
development. Alberta faces a critical need to upgrade the infrastructure
surrounding the oil sands. Quebec is spending a substantial amount on
super-hospital projects, as well as investing in power generation and
transmission facilities. On the East coast, the Atlantic Gateway initiative
aims to increase port activity alongside an improved transportation network.
    "Although most provinces are expected to witness some softening in growth
in 2008, there will continue to be significant regional disparities between
the Western, Central and Atlantic provinces," says Mr. Hamilton.
    Regionally, the West will continue to lead with average growth of three
per cent, underpinned by the booming energy and mining sectors. Central
Canada, mired by weakness in its export-oriented manufacturing sectors, will
trail the national average with 1.4 per cent growth in 2008. Similar to the
West, average growth of 1.8 per cent in the Atlantic provinces will be
supported by the continuing resource boom.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.