Operating Context

The four western provinces have been major contributors to Canada's economy over the past decade. The West led the country in growth^{Footnote 1} and accounted for over 35 per cent of national production.^{Footnote 2} However, the past five years have been challenging for the region as commodity prices and activity in the oil sector fell. Over the past year, economic uncertainty increased across the West as the COVID-19 pandemic hit and greatly affected the economy, society, and health care.

Heading into 2020, the western economy grew only 5.4 per cent over the previous five years, almost four percentage points slower than the national economy^{Footnote 3} . This sluggish economy was primarily due to decreased investment caused by weak global commodity markets and transportation bottlenecks for the oil and gas sector. The COVID-19 pandemic continued to decrease demand around the world, which made things even worse for western Canada. Employment fell by over 900,000 during the downturn and by November 2020, less than 80 per cent of those jobs had returned.^{Footnote 4} The western economy shrunk over six per cent in 2020, more than the national economy. Struggles in the resource sector are expected to result in a slower recovery in 2021 and 2022.^{Footnote 5}

Strengths and Opportunities

Despite recent challenges, the West has abundant resources, assets, and skills that can be leveraged for both short-term recovery and long-term sustainability.

Struggles over the past half dozen years notwithstanding, resources, both traditional and emerging, remain one of the region's biggest economic strengths. The West is the source of 85 per cent of the country's energy exports, almost three quarters of raw and intermediate food exports, almost half of metal ores and related mineral exports, and over 40 per cent of forestry related exports.^{Footnote 6} It has world-leading reserves of oil, potash, and uranium, over 107,000 farming operations that encompass 85 per cent of Canada's farmland,^{Footnote 7} and 14 of the 15 sunniest cities in Canada^{Footnote 8} . Also important to mention is the untapped geothermal potential and extensive wind and hydroelectric resources.

Western Canada's economic potential extends well beyond its natural resources. Entrepreneurship and innovation are strong in the West due to its population being well educated and having more people under the age of 40 than nationally^{Footnote 9} . The region has become home to Canada's Protein Industries Supercluster and Digital Technology Supercluster, and over a quarter of Canada's environmental and clean technology exports are produced in the West. Growth in life sciences exports has been also been impressive. These activities are creating western expertise in science, technology, engineering and mathematics (STEM) skills, including artificial intelligence, machine learning, data analytics, bioscience, and nanotechnology.

Challenges

While the West still struggles through boom-bust cycles in the resource sector, the COVID-19 pandemic has further stretched small and medium-sized businesses and specific demographic groups. Exports from the West are lower other regions^{Footnote 10} and employment among youth and women was hit harder and has been slower to recover than elsewhere in Canada.^{Footnote 11}

Western Canada will continue to tackle these challenges on top of those that existed prior to 2020. Lower commodity prices, reliance on trade with the United States, and trade actions by other countries were affecting exporters. While transportation bottlenecks, especially in areas such as pipelines, railways, and ocean shipping, were limiting investment and export diversification. The effects of these issues has been most evident in the level of investment in western Canada in recent years, especially since the 2015-16 oil price downturn. Private non-residential capital expenditures in the region fell $40 billion between 2014 and 2019, at a time when investment in the rest of the country rose $15 billion.^{Footnote 12}

While the West has a growing, young, entrepreneurial, and skilled workforce, there was a need to improve the participation of key demographic groups even before COVID-19, including Indigenous Peoples, women, and youth. For example, Indigenous youth (15-24 years of age) are the fastest growing population in the West, but continue to face higher unemployment rates (17.7 per cent) compared to non-Indigenous youth (10.3 per cent).^{Footnote 13} Businesses that are majority-owned by women account for just 15 per cent of SMEs, which is significantly lower than women's share of employment or the population, and lower than the national rate.^{Footnote 14}  In terms of youth, while over half of the West's population is under 40, their unemployment rate exceeds the overall rate, as is the case across Canada^{Footnote 15} . The youngest of those workers are experiencing the lowest levels of employment and weaker labour market attachment.

These labour market challenges and the overall economic weakness had pushed the West's unemployment rate above the national rate in early 2016, something unseen in over 27 years and that has yet to be reversed.^{Footnote 16} This has contributed to a weak earnings story for western Canadians. While still the highest in Canada, thanks to previous booms, earnings across the region lagged national income growth each of the last five years prior to 2020.^{Footnote 17}