BMO's New GDP Scenario for Canada's Provinces: A Tale of Two Economies

The Bank of Montreal (BMO) has unveiled its latest economic outlook for Canada’s provinces, painting a picture of stark regional disparities in growth prospects for 2025. While resource-rich provinces like Alberta and Saskatchewan are set to outperform, others face headwinds tied to housing market volatility, labor shortages, and weaker consumer demand. Investors must navigate this uneven landscape with precision.

Provincial Growth: Winners and Losers

BMO’s Q1 2025 projections reveal a clear divide between commodity-driven economies and those reliant on services or manufacturing:

1. Alberta (2.1% growth): The energy sector remains the linchpin, with higher oil prices and the completion of the Trans Mountain Pipeline expansion boosting output. BMO notes that oil sands investments and federal support for renewables will further amplify growth.

2. Saskatchewan (1.8%): Agricultural exports, particularly wheat and potash, are driving expansion, alongside mining investments such as BHP’s Jansen potash project.

3. Newfoundland and Labrador (1.5%): Offshore oil production and government infrastructure spending will underpin growth, though the province faces long-term challenges in diversifying its economy.

In contrast, Canada’s economic hubs are grappling with slower momentum:

• Ontario (1.2%): Housing market softness, rising unemployment (projected to hit 7.1%), and federal student visa restrictions are dampening growth.
• Quebec (1.1%): Manufacturing sector declines and unresolved labor disputes in key industries, such as aerospace, are holding back progress.

Key Drivers and Risks

The BMO analysis highlights three critical factors shaping provincial outcomes:

1. Commodity Prices: Alberta’s and Saskatchewan’s fortunes are tied to global energy and agricultural prices. A underscores this correlation.
2. Trade Policy Uncertainty: Tariffs and geopolitical tensions remain a drag on business confidence, particularly in export-reliant provinces like Ontario (70% of Canadian exports go to the U.S.).
3. Labor Market Tightness: While Alberta and Atlantic provinces enjoy low unemployment, Ontario and Quebec face rising joblessness, constraining consumer spending.

Investment Implications

Investors should prioritize sectors and provinces aligned with BMO’s projections:

• Resource Plays: Energy stocks (e.g., Cenovus Energy, Suncor) and mining firms (e.g., PotashCorp) offer growth potential in Alberta and Saskatchewan.
• Defensive Sectors: Utilities and healthcare, highlighted by BMO as recession-resistant, could outperform in slower-growth provinces.
• Avoid Overexposure to Housing: Toronto and Vancouver’s real estate markets remain vulnerable, with BMO noting a 21.7% chance of negative GDP growth in 2025.

Conclusion: Divergence Defines Opportunity

BMO’s scenario underscores a Canada increasingly divided along economic lines. Provinces benefiting from commodity booms and federal infrastructure spending are poised for growth, while others face structural challenges. The 1.2% national GDP projection masks these regional divides, but investors can capitalize by focusing on:
- Resource-driven provinces (Alberta, Saskatchewan) with exposure to energy and agriculture.
- Defensive stocks in stable sectors to hedge against a 38% recession risk.

The data is clear: Canada’s 2025 economy will reward those who look beyond the national average and bet on provincial strengths.

In this uneven landscape, due diligence and sector-specific analysis are essential to navigate the opportunities—and risks—of Canada’s diverging provinces.