• Economic growth in Quebec to reach almost 4 per cent in 2000, driven by strength in the high-tech sector
• Unemployment rate to fall to 8.0 per cent by 2002
• Quebec consumers to benefit from sizeable cuts to personal income taxes
• Montreal to remain the cornerstone of the province's economic boom

TORONTO - Canada's provinces will enjoy stellar growth rates of 3 to 6 per cent in 2000, with "new economy" industries leading the expansion from coast to coast, say TD economists in their latest issue of the TD Quarterly Industrial and Provincial Forecast. "Quebec's economy is on track to expand by just under 4 per cent for the second year in a row in 2000, led by a sizzling pace of growth in the province's high-tech manufacturing sector, which includes the aerospace, biotechnology and telecommunications equipment industries," says Derek Burleton, Senior Economist, TD Bank Financial Group. While the outlook for these industries remains bright throughout the forecast period, an expected slowdown in demand in Ontario and the United States - Quebec's major export markets - will lead to a more moderate pace of economic growth in the province of about 2.5 per cent per year in the 2001-02 period.

Outlook still bright for personal income growth
Quebec's expansion has been more narrowly-based this year than last, with strong growth in the province's "new economy" industries and manufacturing sector offset by an unexpected slowdown in the consumer-oriented industries. "However, in its 2000 budget, the provincial government handed average income-earners in Quebec one of the largest personal income-tax cuts of any of the provincial governments this year, which should help to keep real after-tax income per capita growing at an annual rate of about 2 per cent in the 2001-02 period," says Burleton. "Given the continued bright outlook for after-tax income, a sustained slowdown in consumer spending growth is unlikely next year."

Montreal at the forefront of growth in manufacturing sector in Quebec
Much of the recent economic strength in Quebec has been centred in Montreal, which is the locus of the high-tech boom now underway in the province. Montreal has accounted for about three-quarters of the net new jobs created in the province this year, pushing the city's unemployment rate down to 7.5 per cent. The strong forward momentum, which is evidenced by a flurry of residential and non-residential building activity, suggests that the city will continue to lead the province in economic growth and job creation throughout the forecast period.

"New economy" industries leading the way in Canada
An emerging theme in the Canadian economy this year is the growing shift in momentum from traditional sectors toward the "new economy" industries (NEIs). "We define the NEIs as goods and services industries that operate in the domain of telecommunications, fibre optics, and computers and software," notes Burleton. "Although their combined size is still small - at about 7 per cent of GDP and 5 per cent of total employment - these industries have accounted for nearly 25 per cent of economic growth and 15 per cent of overall job creation on average in the provincial economies since 1997." An expected slowdown in corporate profit growth will take some of the steam out of the NEIs over the next two years, but demand for information technology is likely to remain relatively strong, which should ensure that the NEIs maintain their recent share of overall output growth and job creation throughout the forecast period.

Sustained increase in energy prices would produce clear winners and losers
Another focal point of this quarter's forecast is the likely impact on economic growth of the surge in energy prices seen over the last twelve months. Assuming that crude oil prices move back towards the US$25-$28 per barrel range next year, the negative impact on real GDP growth in Canada's provinces should be minimal. "However, if crude oil and natural gas prices remain at or above today's high levels, provinces that are net importers of energy products - such as the provinces of central and eastern Canada - could see real GDP growth trimmed by as much as half a percentage point next year," warns Burleton.

In contrast, the high level of energy prices is providing a boost to the economic and fiscal positions of Alberta and, to a lesser extent, Saskatchewan. In Alberta, brightening prospects for growth, together with a surge in crude oil and natural gas royalty collections, prompted the government to lift its estimate of the fiscal 2000-01 surplus to a mammoth $5 billion and announce cuts to corporate income-tax rates, which match those promised by the government of Ontario in its May 2000 budget. "This will put increasing pressure on other provinces - which already have some work to do to narrow the gap in personal income-tax rates with Ontario and Alberta - to move corporate tax breaks further up the agenda for the 2001 budget round," says Burleton.

Real GDP: Real gross domestic product in 1992 dollars
Forecast by TD Economics as at October 2000
Source: Statistics Canada, TD Economics

For more information, please contact:

Derek Burleton
Senior Economist, Canadian Industries and Provinces
(416) 982-2514

Don Drummond
Senior Vice President and Chief Economist
(416) 982-2556