Canada’s regional economies

We’ve also seen entire sectors adapt within the regional economies. For example, since China joined the World Trade Organization in 2001, manufacturing firms in Central Canada have had to adjust and include automation and digital processes to remain competitive. Other businesses have moved away from production to focus more on design, logistics and wholesale trade.

We’re better together

Our Canadian economy is stronger as a whole because of our regional differences.

When one area experiences an economic boom, workers may move there with the hope of getting a better job or earning a higher wage. And in weaker regions, companies with capacity to produce more may try to tailor their offerings to meet the demand in the booming areas.

Together, these activities help the Canadian economy use its production capacity more efficiently—and more sustainably. The use of resources from outside the booming region can reduce the upward pressure on wages and prices caused by the boom itself.

The ebb and flow of workers—an example

Let’s look at the oil industry. During periods of high oil prices in the mid-2000s and again between 2012 and 2014, demand for labour surged in Alberta. Many people moved there from the rest of Canada.

In contrast, the 2015 crash in global oil prices took a significant toll on the sector, with thousands of workers losing their jobs. Because oil prices remained low in the aftermath of the crash, the industry shifted to more automation—for example, driverless trucks—which led to permanent job losses. Many oil sands workers moved out of Alberta. Some joined retraining programs to work in other industries, including the growing renewable energy sector.

The more freely that labour, trade and capital can move across regions, the faster the national economy can adjust to shocks that are specific to a region or sector.

There’s always a “but…”

It sounds straightforward, right? Well, in practice it’s not always that easy.

• Differing provincial rules and regulations create barriers across regions. This includes labour market rules, such as licensing requirements and restrictions on interprovincial trade.
• Workers and companies in one region may not respond immediately if they believe a boom in another region will be short-lived.
• Workers may also be reluctant to move away from friends and family or to an area where they believe language or cultural barriers exist.
• Other factors like high housing costs in booming job markets may also discourage workers from moving.

The good news is that technology can help limit some of these barriers. As we saw during the COVID-19 pandemic, remote work has become easier for many different occupations.

When and how the Bank responds

The diversity of Canada’s economy helps reduce the impacts that regional and sectoral shocks have on the economy as a whole. But when a shock that is unusually large or long-lasting hits a region or sector, sometimes the rebalancing of resources that occurs across regions simply isn’t enough.

When this happens, the national economy can be thrown off course. The rate of inflation tends to move away from the 2% target. But staying close to this target is the main goal of monetary policy in Canada.

That’s when the Bank of Canada can step in using our main inflation-control tool: the target for the overnight interest rate. When we change this short-term interest rate, changes in other rates, like those for mortgages and business loans, generally follow.

This type of monetary policy action helps to stabilize overall demand in the economy, bring inflation back to its target and return the economy to its long-term path.