Be it a rekindled admiration for our armed forces or a new infatuation with Eugenie Bouchard, there's much that united Canadians in 2014. But our similarities ended when it came to economic vitality. Over the past several years, growth rates have been uneven across the regions. Alberta's real gross domestic product expanded at close to 4 per cent annually since 2011, while Ontario eked out barely half that. Saskatchewan raced ahead while Quebec languished.
But change is decidedly in the air. With commodity prices in the sewer, there's no getting around that 2015 is going to be a slow year for Alberta, Saskatchewan, and Newfoundland and Labrador. Not only will government budgets be stressed, but investment and labour markets are certain to slow.
Ontario and Quebec, on the other hand, will both see growth rates accelerate this year. The softer Canadian dollar and a decidedly upbeat U.S. economy will lift services and manufacturing (even if the latter hasn't yet completed a long-term transformation into something new).
This is unlikely to cheer any of my compatriots in Alberta, but I'm a Canadian first. There are benefits to the convergence of economic growth rates across the country in 2015.
The first is around monetary policy. It's never easy for the Bank of Canada to set one overnight interest rate for the entire country since growth and inflation pressures are almost never in sync between the regions. The problem with tracking the average inflation across the country is like the dilemma of the guy whose head is in a furnace and feet are in blocks of ice: On average he should be comfortable, but in fact he's in terrible shape.
The only way the central bank can deal with such regional variation is to ignore it – not in the sense that it doesn't matter, but in the sense that there's nothing that can be done about it. More uniform rates of growth and more consistent rates of inflation across regions should help the bank find the most appropriate policy. This will be especially important in 2015 as we are likely to see interest rates gradually start to climb by the end of the year.
The second benefit of more uniform rates of regional growth is the reduced strain on the equalization program. Enshrined in the Constitution Act of 1982, the regional redistribution program cannot be terminated by Ottawa (nor should it be). But because its application has been fiddled with so many times for political gain, the program is a bit of a mess.
The formula used to calculate payments to the "have-not" provinces is driven by the average per capita revenue available to all 10 provinces, drawn from a selection of revenue sources. If the "have" provinces such as Alberta and Saskatchewan experience lower revenues from natural resources, the mean revenues per capita will fall and every province will be brought closer to the average. In theory, this should reduce the payments required from Ottawa to the have-nots. In practice, the amount of cash payments is unlikely to fall, but at least there will be less pressure on Ottawa to actually increase payments.
The third benefit is fewer displaced families and individuals from interprovincial migration flows. Canada's system of labour mobility allows citizens to move to any part of the country to take on employment. This brings benefit of its own, such as helping employers find qualified workers at reasonable wages. But an extremely heavy flow of migrants from one region to another (as we saw in 2013 and 2014) also creates strains.
Regions with an outflow of workers often see the brightest and most educated leave; it can also damage communities and bring challenges for those caring for aging parents. The regions with an inflow of workers can face housing shortages and pressures on public infrastructure costs for schools and roads. The more uniform growth rates will see fewer Central Canadians pack up and move to the Prairies in 2015.
Slower growth on the Prairies and Newfoundland, faster growth in Central Canada and B.C., and modest acceleration on the East Coast should make for a more stable national economy this year. And that's something to which we can all raise a glass.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.