Provincial Credit Watch
August 05, 2026 | 10:31
Provincial Credit Watch: August 2026
Economics
Economics
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Provincial Returns |
Long provincial returns struggled in the past month, as long GoC yields rose meaningfully and spreads widened slightly. GoC yields were higher along the curve, with a 27 bp back up in 30-year yields in July partly piggybacking a like-sized move in U.S. yields. The Bank of Canada was firmly on hold at the July meeting, and we continue to believe they will be so through the rest of 2026. Meantime, long provincial spreads widened somewhat in the month as ongoing geopolitical uncertainty and some stumbling in the equity market weighed on risk appetite—although both have improved again into August. Year-to-date, long provincials are outperforming Canadas by just under 3 percentage points, at a 1.9% total return. |
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Relative Performance |
All provinces saw spreads widen modestly over the past month, with little in the way of new fiscal news. Stepping back, Ontario still maintains the tightest spreads in the group, as a large and liquid issuer with a recent history of upside fiscal surprises. Saskatchewan and Alberta now trade in-line or only a few basis points back, and at the lower end of their 3-year range versus Ontario, helped by still-elevated oil prices that will add upside to this year's fiscal plans. B.C. and Quebec both trade at the wider end of their 3-year range versus Ontario as the fiscal picture in those provinces, as well as some political uncertainty in the latter, weigh for now. |
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Fundamentals |
Canada Growth Rebound and Job Market DisparityGone are the days of recession chatter (which we never subscribed to, for the record) and we now stare at Q2 growth pushing well above the 3% mark. That comes after a strong run of monthly GDP data, a sharp rebound in net export volumes in the quarter, signs of a bottoming housing market, and even life in business investment. As a result, we now expect 3.8% growth in Q2, which is sharp reversal from the prior two consecutive negative prints. That leaves 2026 growth at an even 1.0%. At the provincial level, Alberta looks to lead the pack among larger provinces this year with 2.3% growth (Newfoundland & Labrador tops the list at 3.3%). B.C., Ontario and Quebec lag with sub-1% growth expected, as population caps and trade uncertainty hit relatively hard in those provinces. That said, B.C. and Ontario, which have been hard hit by real estate downturns for the better part of the past four years, appear to see activity and prices stabilizing overall. |
The job market is one area this provincial growth gap is very evident. Alberta employment was up a hefty 3% y/y as of June, the strongest by far among the larger provinces where Labour Force Survey numbers are somewhat reliable (as opposed to the wild swings we see in areas like PEI, for example). In fact, while Canadian job growth is up a solid 0.5% y/y (solid because we don't need many net new jobs right now given a flat labor force) growth excluding Alberta is just 0.1% y/y, and employment excluding Alberta is down year-to-date through June. Alberta is also one province that continues to see strong labor force growth at +3.2% y/y. Not only is the province less impacted by nonpermanent resident caps (their share never got out of whack relative to the national target, as B.C. and Ontario did), but they also continue to draw in strong net interprovincial migration flows. |
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Elsewhere in the job market, Ontario remains very choppy. Through the swings, employment is up a solid 0.8% from a year ago despite challenges in trade and real estate. The jobless has backed down by 0.8 ppts in the past year as immigration caps have curbed labour force growth. Quebec remains a soft spot, with employment down by 16k in Q2 and 0.9% from a year ago. Construction, manufacturing and some services have seen the biggest job declines this year. Job-market performance across Canada’s cities generally shows strength in resource-heavy markets, and softness in areas where trade concerns are highest and immigration caps are hitting hardest. Calgary leads our city ranking, while Regina and Edmonton hold spots in the top 10. Southwestern Ontario cities, along with a few regions of B.C., make up most of the bottom 10. |
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Recent Publications of InterestCanadian Housing Monitor: Canada's housing market is stabilizing, and we've probably found the floor for this long cycle. Full analysis here Stork Reality: The Economics of Fewer Babies. Fertility rates are plunging in Canada and much of the world, with many regions now well below replacement. We look at some of the reasons why and what it means for the economy and policymakers. Full analysis here Spring Economic Update: Canada Strong, Deficits Long. Ottawa is projecting a $65.3 billion deficit (1.9% of GDP) for FY26/27 in the Spring Economic Update, little changed from the $65.4 billion forecast in the original budget plan. Full analysis here Canada’s Population Estimates: Shrink Nation. Canada’s population fell 0.2% y/y in Q1, the first annual population decline on record going back to WWII. Full analysis here Provincial Monitor: The Canadian economy is still dealing with the burden of U.S. tariffs, but the impact is uneven across the country, and conditions are beginning to drift apart. Full analysis here. Housing Outlook: What You See is What You’ll Get: As we continue to work through the secular downturn in Canadian housing, expect more of the same for sales and prices in 2026. This year figures to bring a weaker rental market, shy investors, and another step closer to restoring affordability. Full analysis here Federal Budget: The highly anticipated 2025 budget lands in the middle of a trade dispute, and at a time when the economy is struggling to grow. Full analysis here. Canada’s Job Market: Decoding the Disruptors: Canada’s job market is exhibiting signs of slack, which could still tilt the BoC toward easing. Notable longer-term disruptions include the trade war, a leaner federal government, high youth unemployment and the proliferation of AI. Full analysis here. Supply, Meet Demand: Housing affordability will return to pre-pandemic norms through a combination of market dynamics, income growth, a modest reduction in borrowing costs and firm construction activity. Full analysis here. Guns N’ Bonds: Ottawa’s sudden shift to higher defence spending will also have implications for the budget deficit and, potentially, long-term interest rates. Full analysis here. 2025 Election — The Same, but Different: The Canadian election results are still being finalized, but Mark Carney and the Liberals appear to have secured a strong minority government mandate. Full analysis here |
FY26/27 Budget ReportsThe Province of British Columbia is projecting a $13.3 billion deficit in FY26/27. Full analysis here The Province of Alberta is projecting a $9.4 billion deficit in FY26/27. Full analysis here The Province of Saskatchewan is projecting a $819 million deficit for FY26/27. Full analysis here. The Province of Manitoba is projecting a $498 million summary budget deficit in FY26/27. Full analysis here The Province of Ontario is projecting a $13.8 billion deficit for FY26/27. Full analysis here The Province of Quebec is projecting a $6.3 billion deficit in FY26/27. Full analysis here The Province of New Brunswick is projecting a $1.4 billion deficit for FY26/27. Full analysis here The Province of Nova Scotia is projecting a $1.2 billion deficit in FY26/27. Full analysis here The Province of Prince Edward Island is projecting a $410 million budget deficit for FY26/27. Full analysis here The Province of Newfoundland & Labrador is projecting a $688 million deficit in FY26/27. Full analysis here |