Provincial Ranking

Economy

Key Messages

  • Resource-rich Alberta, Saskatchewan, and Newfoundland and Labrador are the top performers among all the provinces and international peers—all three provinces score “A+” grades on the Economy report card.
  • New Brunswick and Nova Scotia are at the back of the pack, with “D” grades overall.
  • Most provinces, and Canada, are middle-of-the-pack performers, scoring high on some indicators but well below average on others.
  • The territories, particularly Yukon and Nunavut, outperform most of the provinces on several Economy indicators.

How is economic performance measured?

The Conference Board’s overarching goal is to measure quality of life for Canada, its provinces, and its peers. We ask two questions: Do Canadians have a high quality of life? Is it sustainable?

When measuring the economic aspect of quality of life, we consider three dimensions:

  1. economic wealth
  2. economic disadvantage and hardship
  3. economic sustainability

1. Economic Wealth

Economic wealth is captured by income per capita. Income per capita reflects material living standards, that is, the capacity of Canadians to purchase the goods and services needed to live, such as housing, food, and clothing. It is also indicative of the ability of a province or country to sustain living standards through public spending on education, health, and infrastructure, as well as through private and public savings that can be used to generate future income and to support future consumption. At the macro level, a province or country that is not generating enough income is hampered in what it can do in other areas, such as the environment and education.

2. Economic Disadvantage and Hardship

Economic disadvantage and hardship is measured by the unemployment rate. High unemployment hurts a province’s or country’s labour productivity and its gross domestic product (GDP) growth. High unemployment is also linked to elevated rates of poverty, homelessness, income inequality, crime, poor health outcomes, low self-esteem, and social exclusion.

3. Economic Sustainability

Economic sustainability is defined here as the ability of a province or country to sustain its economic growth and prosperity into the future. Facets of economic sustainability include economic growth, macroeconomic stability, and global integration.

  • Economic growth is represented by three indicators—real (that is, inflation-adjusted) GDP growth, labour productivity growth, and employment growth.
    • GDP growth is essential to sustaining living standards. A province or country that has a relatively high GDP level today is not guaranteed that this level will be maintained.
    • Productivity growth is the single most important determinant of a province’s or country’s long-term GDP growth and per capita income, and it is therefore the only sustainable way to improve standard of living. Productivity can be enhanced by finding more efficient and effective ways to yield goods and services so that more can be produced with the same amount of effort. Productivity can also be improved by producing higher-value-added products and services that are worth more in the market place.
    • Employment growth is a driver of income per capita. It reflects the capacity of a province or country to absorb new workers joining the labour force and to use the labour resources available. A buoyant economy is one that is creating new jobs.

  • Macroeconomic stability is represented by a proxy indicator: the inflation rate.
    • The inflation rate reflects sustainability because rapidly rising prices erode the purchasing power of consumers; that is, inflation reduces the quantity of goods that can be purchased with a given amount of money. Deflation is also bad because it depresses consumption and overall activity. Periods of high inflation or deflation undermine the economy’s ability to sustain prosperity.

  • Global integration: Conference Board research connects economic sustainability with a country’s ability to integrate in the global economy. With the rise of global value chains and complex integration flows, it is difficult to assess a region’s status with respect to global integration. The Conference Board uses two proxy indicators: the inward and outward greenfield foreign direct investment (FDI) performance indexes. These indexes measure a region’s share of global greenfield FDI relative to its share of global GDP. Greenfield FDI is investment that expands an existing facility or creates a new facility. Ideally, we would benchmark total inward and outward FDI, which includes data on mergers and acquisitions. Unfortunately, comparable data on total inward and outward FDI are not available at the provincial level.
    • The inward greenfield FDI performance index captures a region’s relative success in attracting global greenfield FDI. Inward FDI encourages the diffusion of technology management know-how, as well as more efficient resource allocation. Subsidiaries acquire knowledge and technologies from their international parent. Domestic firms that interact with these subsidiaries also benefit from these transfers of technology and knowledge. Ultimately, inward FDI leads to higher productivity, improved quality of products, and increased competitiveness.
    • The outward greenfield FDI performance index reflects a region’s relative success in investing elsewhere in the global economy via greenfield FDI. Outward FDI opens access to foreign markets and promotes deeper integration into global supply chains, making an economy’s firms more efficient and competitive. Outward FDI promotes trade by developing new exporting (and importing) opportunities.

What does the provincial economic report card look like?

Which provinces are riding the resource wave to the top of the standings?

Alberta, Saskatchewan, and Newfoundland and Labrador are the top-rated regions. Not only do they rank highest among the provinces, they also rank 1st, 2nd, and 3rd overall, scoring “A+” grades on the overall Economy report card for performing better than the top-ranked international peer country, Australia. These provinces are endowed with energy and other resources that have experienced strong global demand in recent years. The benefits of resource exports, particularly energy, have led to rising incomes in these provinces and higher consumer spending. This spending, in turn, has boosted the services sector and real estate activity.

Alberta is the class leader, scoring an “A+” grade for an income per capita in 2013 that was $10,000 higher than that of Norway, the top-ranked peer country. Alberta also scores “A+” grades on GDP growth and employment growth and “A” grades on the unemployment rate and inflation. Alberta scores “B” grades on the inward and outward greenfield FDI performance indexes. The province earns its lowest grade, a “C,” on labour productivity growth, with less than 1 per cent average annual growth between 2008 and 2012.

Saskatchewan also receives “A+” grades on GDP growth and employment growth. Saskatchewan’s employment growth of 3.4 per cent in 2013 was the highest among all comparator regions, and its unemployment rate of 4 per cent was the second lowest after Norway, giving it an “A” on this indicator. Like most of the provinces, Saskatchewan also receives an “A” grade on the inflation indicator. Saskatchewan’s worst performance is on the outward greenfield FDI performance index—it earns a “D–” on this indicator, ranking below the worst-performing peer country, the United States.

Newfoundland and Labrador excels on two indicators. On the inward greenfield FDI performance index, Newfoundland and Labrador ranks first overall, scoring an “A+” grade. The province’s mining sector and offshore oil resources have attracted a large portion of FDI relative to its economic size. Newfoundland and Labrador also ranks first and scores an “A+” on GDP growth, with 7.9 per cent growth in 2013. Like the two other “A+” provinces on this indicator, Saskatchewan and Alberta, Newfoundland and Labrador has benefited from its natural resource base and high commodity prices. Newfoundland and Labrador also does well on employment growth, scoring an “A” grade. However, the province’s employment growth of 1 per cent in 2013 was modest—its “A” is more of a reflection of poor growth in peer countries, primarily the eurozone countries.

Newfoundland and Labrador’s overall ranking is pulled down by its performance on three indicators. It scores “D–”s on the outward greenfield FDI index and labour productivity. Newfoundland and Labrador had no outward greenfield FDI flows in three of the five years between 2008 and 2012 and ranks second-to-last on this indicator. The province ranks last on labour productivity growth, with negative productivity growth in four of the five years between 2008 and 2012. Oil production was hurt by the 2008–09 recession and dropped sharply again in 2012 as a result of maintenance work, pulling down the province’s recent productivity performance. Newfoundland and Labrador scores a “D” on the unemployment rate indicator, with the third-highest rate in 2013 after Ireland and Prince Edward Island. In 2013, the unemployment rate in Newfoundland and Labrador was over 11 per cent. On a positive note, unemployment in the province is on a downward trend and is at its lowest level in the past few decades, thanks to activity in mining and in the oil and gas sector of the economy.

The chart below is a snapshot of the provinces’ economic performance relative to the top-performing peer country—represented by the red line—on each of the eight Economy indicators. A score close to the red line means the province is close to the top country on the given indicator. A score crossing the red line (above 100) means the province does better than the top-performing country. The worst-performing country is represented by a score of 0. A negative score means the province does worse than the poorest-performing peer country.

As shown in the chart, Alberta does better than the top-performing peer country on three indicators: income per capita, GDP growth, and employment growth. Saskatchewan does better than the top-ranked peer country on GDP growth and employment growth and does worse than the poorest-performing peer country on outward greenfield FDI, as does Newfoundland and Labrador. Newfoundland and Labrador does better than the top-ranked peer country on inward greenfield FDI and GDP growth.

Which provinces are at the back of the pack?

New Brunswick and Nova Scotia score “D” grades on the overall Economy report card. The sluggish U.S. recovery has hurt export demand, and both Nova Scotia and New Brunswick have also had very weak domestic economies in recent years. These two Eastern provinces have been burdened by excess production capacity, as they have not benefitted from the boom in commodity demand over the past decade like Alberta and Saskatchewan.

New Brunswick ranks last among the provinces, second-to-last overall, and worse than the bottom-ranked peer country on two indicators, scoring “D–” grades for income per capita and outward greenfield FDI performance. New Brunswick earns “C” grades on the unemployment rate, employment growth, GDP growth, and labour productivity growth. The province’s highest grade is a “B,” which it earns on two indicators: the inward greenfield FDI performance index and inflation.

Nova Scotia has struggled to generate strong economic growth over the past three years, and labour markets have not expanded much. Nova Scotia ranks 23rd among the 26 comparator regions. Like New Brunswick, and most of the other provinces, it scores a “D–” grade on the outward greenfield FDI performance index. Nova Scotia also scores “D” grades on income per capita and employment growth and “C” grades on unemployment and inward greenfield FDI. Despite its overall poor standing, Nova Scotia does do well on three indicators, scoring an “A” grade on inflation—like most of the comparator regions—and “B” grades on GDP growth and labour productivity growth. Nova Scotia had the second-highest average labour productivity growth among the provinces in the period between 2008 and 2012.

The chart below is a snapshot of the provinces’ economic performance relative to the top-performing peer country—represented by the red line—on each of the eight Economy indicators. A score close to the red line means the province is close to the top country on the given indicator. A score crossing the red line (above 100) means the province does better than the top-performing country. The worst-performing country is represented by a score of 0. A negative score means the province does worse than the poorest-performing peer country.

The chart shows that both New Brunswick and Nova Scotia do worse than the bottom-ranked peer country on outward greenfield FDI. New Brunswick’s income per capita is also lower than that of the lowest-ranking peer country. Nova Scotia’s income per capita is low and close to that of the worst-ranking peer country.

Which provinces are middle-of-the-pack performers?

With its 10th-place finish, Ontario is the highest-ranking “B” province. Its best performance is an “A+” for employment growth. In 2013, Saskatchewan, Alberta, P.E.I., and Ontario all had higher employment growth than Ireland, the top-ranking peer country. Ontario’s employment growth of 1.4 per cent was, in part, a result of the catch-up following the 2.5 per cent decline at the peak of the recession—one of the largest declines in the country—but also thanks to strength in the services sector. Ontario scores “B” grades on the unemployment rate and GDP growth indicators. On both indicators, however, Ontario ranks below the national average. Ontario earns “C” grades on income per capita, labour productivity growth, and on both the inward and outward greenfield FDI performance indexes.

Ontario’s middle-of-the-pack performance is a result of subdued export demand due to the double-whammy effect of a strong loonie and a sluggish U.S. economy. What’s more, chronically high fiscal deficits and rising debt levels have made it difficult for the province to invest in education and innovation, the building blocks for productivity growth and, ultimately, an improved standard of living. While manufacturing is expected to continue to constitute a significant part of Ontario’s economy, the province is adapting to global long-run shifts toward greater economic activity and employment coming from the services sector. Although this will cause short-term adjustments in some manufacturing industries, the makeover will likely boost the province’s economic performance in the longer run.

British Columbia is in the middle of the pack with its 12th-place finish. B.C. is the only province to score an “A” on the outward greenfield FDI index. It also scores an “A” on GDP growth and a “B” on unemployment. The province earns a “C” on income per capita, ranking 5th among the provinces and 10th among all comparator regions. B.C. also earns “C” grades on employment growth, labour productivity growth, and on the inward greenfield FDI index. Indeed, employment dropped in the province in 2013. The sluggish U.S. housing market over the past few years has affected B.C.’s lumber exports. A decline in residential construction activity and stiff competition from neighbouring Alberta for labour resources has also hurt the province. B.C. gets its fifth “C” on inflation—the only province to get a “C” on this indicator—with a decline in consumer prices of 0.1 per cent in 2013. This drop reflects the removal of the harmonized sales tax that year. B.C.’s inflation rate is expected to return to normal levels in 2014.

P.E.I. ranks 15th among the 26 comparator regions. Besides Newfoundland and Labrador, P.E.I. is the only province that does well on the inward greenfield FDI performance index, scoring an “A+” grade. P.E.I. scores another “A+” on employment growth, with close to 2 per cent growth in 2013. The province’s economy has benefitted from solid growth in the manufacturing sector as well as investment in wind energy. P.E.I. is pulled down in the rankings by very poor performance on three indicators. The province has the highest unemployment rate in Canada and earns a “D” grade. P.E.I. scores a “D–” on income per capita with the lowest GDP per capita among the provinces and peer countries. P.E.I. also ranks last and earns a “D–” grade on the outward greenfield FDI performance index because it has no measured outward greenfield FDI.

The chart below is a snapshot of the provinces’ economic performance relative to the top-performing peer country—represented by the red line—on each of the eight Economy indicators. A score close to the red line means the province is close to the top country on the given indicator. A score crossing the red line (above 100) means the province does better than the top-performing country. The worst-performing country is represented by a score of 0. A negative score means the province does worse than the poorest-performing peer country.

Ontario does well on employment growth and inflation, ranking as high or higher than the top-performing peer country. B.C.’s best performance is on the GDP growth indicator—the only measure on which it comes close to the performance of the top-ranked country. P.E.I. does better than the best-performing peer country on employment growth and inward greenfield FDI and ranks below the worst-performing country on income per capita and outward greenfield FDI.

Manitoba ranks 17th among the 26 comparator regions. The province does well on unemployment, GDP growth, and inflation—scoring “A” grades on these indicators. In 2013, the province’s unemployment rate was 5.4 per cent, the third lowest unemployment rate in Canada after Saskatchewan and Alberta, and well below the unemployment rates in the U.S. and the eurozone countries. Manitoba ranks first among the provinces and third overall on labour productivity growth with average annual growth of 1.5 per cent between 2008 and 2012. The province has benefited from upswings in the agriculture, metal mining, and construction industries. Manitoba’s “A”s on three indicators and its strong “B”s on two others are not enough to propel it to a higher spot in the overall rankings, however. Manitoba does poorly on both the inward and outward greenfield FDI indexes. It ranks last among the provinces on the inward greenfield FDI index and is one of only two provinces to score a “D” on this indicator. Manitoba, along with several other provinces, ranks near the bottom on the outward greenfield FDI index and scores a “D–” grade. Manitoba also gets a “D” grade on income per capita.

Quebec is right behind Manitoba, ranking 18th overall. The province does relatively well on some indicators, scoring an “A” on employment growth and “B”s on GDP growth, unemployment rate, and inflation. But it still gets a “C” grade overall on the Economy report card because of its “D–” on the outward greenfield FDI performance index and its “D” grades on income per capita and inward greenfield FDI performance. On income per capita, Quebec ranks 7th among the provinces and 21st overall among all the comparator regions. Like Ontario, Quebec’s economy has been affected by the high value of the loonie, slower U.S. growth, and globalization. Investor uncertainty fuelled by the on-again, off-again political debate surrounding separation may have also hurt investment in the province and, consequently, dragged down productivity growth and per capita income since the mid-1990s.

The chart below is a snapshot of the provinces’ economic performance relative to the top-performing peer country—represented by the red line—on each of the eight Economy indicators. A score close to the red line means the province is close to the top country on the given indicator. A score crossing the red line (above 100) means the province does better than the top-performing country. The worst-performing country is represented by a score of 0. A negative score means the province does worse than the poorest-performing peer country.

The chart shows that both Manitoba and Quebec do worse than the lowest-ranking peer country on outward greenfield FDI. Both provinces also rank low on income per capita and inward greenfield FDI.

What does Canada’s overall report card look like?

Overall, Canada gets a “B” grade on the Economy report card, ranking 5th among the peer countries, and 8th overall. While Canada’s overall “B” grade is good, there is definitely room for improvement. Canada’s “C” grades on three indicators—income per capita, labour productivity growth, and inward greenfield FDI—and its “D” on outward FDI, are worrying. The provinces with “B” grades have plenty of room for improvement and perform below average on several indicators—their overall “B”s are more of a reflection of sub-standard performance of the peer countries in recent years, particularly in the eurozone countries and the United States.

What about the territories?

The territories are not included in the overall provincial and international benchmarking calculations because data are not available for many of the indicators included in the six main report card categories. However, we do produce separate territorial report cards when data are available. In the case of the Economy category, data on the territories are available for six of the eight indicators.

Yukon and Nunavut perform well on the six economic indicators, with a total of five “A+”s and four “A” grades between them.

Yukon gets “A” or “A+” grades on almost all indicators. Yukon scores an “A+” with employment growth of 2.1 per cent—while moderate, this growth was higher than that of any international peer country. Yukon’s economy is largely resource-based, and its above-average grades are due to the strong development in the territory's mining industry. Per capita income in Yukon has been above that of all provinces except Alberta since the mid-1980s. Its per capita income is higher than that of Norway, the top-ranking peer country, earning Yukon an “A+” on this indicator. Yukon's lowest grade is a “B” on GDP growth—it had 1.3 per cent growth in 2013.

Nunavut scores three “A+” grades for performing better than the top-ranked peer country on GDP growth, employment growth and labour productivity growth. Nunavut had an impressive 10.5 percent GDP growth in 2013, and 6.9 per cent employment growth, a rebound from almost no growth the previous year. Nunavut’s labour productivity growth of over 4 per cent in 2008–12 lands it in top position on this indicator, with higher average growth than the best-performing peer country, Ireland. Like Yukon, Nunavut has also benefitted from the development of its mining industry.

Nunavut scores lower grades on income per capita and the unemployment rate. With per capita income levels below those of the Northwest Territories and Yukon, Nunavut scores a “B” grade on income per capita. However, its income per capita is still high by Canadian standards, surpassing the Canadian average in 2011, 2012, and 2013. Nunavut scores a “D” on unemployment. In 2013, Nunavut’s unemployment rate was a very high 13.5 per cent, higher than that of all comparator countries except Ireland. Two key factors contribute to the high unemployment rate:

  • Many jobs in Nunavut are filled by workers from the South who do not take up residency in the territory and are therefore not counted in territorial employment statistics.
  • The increase in jobs due to economic expansion has encouraged more Nunavummiut to enter the labour force. As not all new entrants find jobs, the number of unemployed increases.

The Northwest Territories scores an “A+” grade on income per capita and an "A" on GDP growth. Per capita income in the N.W.T. has been well above that of every Canadian province since the beginning of the 2000s, when data on the territory as separate from Nunavut became available. N.W.T.’s strong resource base, including diamonds as well as oil and gas, is the catalyst for its strong economy. N.W.T. scores its worst grades on employment growth and labour productivity growth. Employment in the N.W.T. contracted slightly in 2013, landing the territory a “C” grade. As the worst performer overall on labour productivity growth, N.W.T. gets a “D–” on this indicator, with a decline in labour productivity of over 4 per cent between 2008 and 2012. This drop in labour productivity was led by weakness in N.W.T.’s mining industry, which accounts for about 35 per cent of the territory’s GDP. In particular, the diamond industry in the N.W.T. is rapidly maturing and production is falling. Nonetheless, the level of labour productivity in the N.W.T. remains high. In fact, N.W.T. has the highest labour productivity among the provinces and territories and is second only to the top international peer, Norway.

Will Alberta and Saskatchewan continue to dominate the Economy report card in the future?

Top-ranking Alberta and Saskatchewan will likely remain strong performers in the coming years. These two resource-rich provinces will continue to record lower unemployment rates than the rest of Canada and experience stronger growth than the peer countries as the eurozone continues its long and painful recovery from recession.

However, the magnitude of the difference in performance between these top two performers and the other provinces and countries could shrink as a result of developments in the global economy and an improvement in economic growth in Central and Atlantic Canada. The boom in commodity prices that has benefitted labour markets in Western Canada is expected to moderate, and as the U.S. emerges from its slump, Central and Atlantic Canada and B.C. should benefit from renewed export demand.

Western Canada will also face supply-side constraints that could limit production and employment in the natural resource sector over the next five to ten years. A number of pipeline projects are in a state of limbo because of their political nature and disputes over environmental concerns—in particular, the Keystone pipeline to transport crude oil from Alberta to the U.S. Gulf Coast, as well as the Northern Gateway pipeline to transport oil from Northern Alberta to Canada's west coast.

Alberta and Saskatchewan will also continue to struggle to find enough qualified workers for the expansion of their resource sectors, another factor limiting production and growth. Tight labour markets put upward pressure on wages, a development that could potentially limit the profitability and available cash flow of resource companies in Western Canada. Real estate prices will stay strong as a result of rising interprovincial migration, and concerns may arise about a boom-bust property market and economy.

Regions endowed with natural resources, particularly energy resources, are undeniably at an advantage and will likely continue to dominate the rankings. However, these regions are also at the mercy of commodity prices and their volatile nature. No province can afford to rest on its laurels.

So, although Alberta and Saskatchewan will likely still be strong performers, the gap between these two and other provinces and peer countries will eventually narrow. Also, it is important to stress that since both economies are highly resource-driven, volatility in commodity prices could dramatically affect their scores on key economic indicators like GDP, employment, and labour productivity growth.

Are non-resource-rich provinces destined to remain poor performers or average at best?

It is imperative that Canada and its provinces focus on initiatives that promote labour productivity growth if they are to improve their overall performance and their relative ranking. A common denominator for many provinces is their lagging productivity performance. Most provinces continue to record weak growth in labour productivity, and the labour productivity gap with the U.S. is widening in most provinces, not narrowing. Low productivity levels present an enormous challenge for future economic prosperity.

Improving labour productivity is not about working longer or harder; it’s about working smarter. It’s about finding more efficient and effective ways to produce goods and services so that more can be produced with the same amount of effort. It’s also about producing higher-value-added products and services that are more valued in the marketplace. The onus of improving productivity lies not just with governments, but also with individual firms and their management and ownership.

There is no silver bullet for improving productivity; a number of factors merit examination and change.

Investing more in machinery and equipment (particularly information and communications technology equipment), fostering innovation, and attracting more FDI are regularly cited as key ways to boost productivity. Canada’s investment in machinery and equipment as a percentage of GDP is among the lowest of its peer countries. At the provincial level, it is the resource-intensive provinces—Alberta, Saskatchewan, and Newfoundland and Labrador—that invest more in machinery and equipment per worker than the United States does.

Innovation is a key element for productivity, but a difficult concept to measure. It is even more difficult to pinpoint effective policies that improve innovation performance. Measures that can help boost innovation performance include initiatives such as credits and programs that encourage business spending on research and development, investments in public infrastructure, reductions in barriers to trade, foreign direct investment, and labour mobility.

Global integration is essential to sustaining and boosting economic performance, particularly for small open economies like Canada. In this benchmarking analysis, we look at two proxy measures of global integration—the inward and outward greenfield FDI indexes. FDI outflows can promote innovation and help boost productivity by providing access to foreign markets and promoting deeper integration into global value chains, making an economy’s firms more efficient and competitive. On the outward greenfield FDI index, seven of the provinces earn “D–” grades. In other words, more than half of the provinces do worse than the bottom-performing peer country at investing in the global economy via greenfield FDI.

FDI inflows can also help boost productivity. FDI encourages the diffusion of technology management know-how, as well as more efficient resource allocation. Overall, the provinces fare better on the inward FDI performance index. The share of inward FDI to Canada’s natural resource sector has increased since the early 1990s. Small economies like Newfoundland and Labrador and P.E.I. do better than all the provinces and peer countries on the inward FDI indicator, attracting more greenfield FDI than their economic size would suggest. Still, six of the provinces have an inward FDI index value that is less than one, meaning that they attract less inward FDI than is warranted by their economic size.