Quebec Has Shown Real Grit

Back when Quebec’s economy was struggling, we argued it was well positioned to bounce right back once interest rates started coming down. This proved to be the case, with Quebec’s economy showing real strength this year. Employment was sluggish just a few months ago. But as of November, it’s up 1.1% year over year, with most of that gain coming since July. While Quebec’s unemployment rate did rise to 5.9% last month, on the year it’s up 1.2 percentage points—just like the national rate. And the provincial increase has been driven not so much by layoffs, but by the relatively few jobs available for the number of people looking for work. In the first half of the year, GDP grew an annualized 3.2% in Quebec vs. 2.0% in Ontario and 1.6% in Canada as a whole. The real estate market is booming, with sales up 44% year over year in October. This has pushed prices higher, with the MLS Home Price Index for Quebec advancing 6.1% over the past 12 months—its biggest jump since the Bank of Canada raised interest rates post-pandemic. Meanwhile the savings rate is still in the double digits in Quebec, one of the main reasons we were confident the province would emerge from last year’s slump.

But make no mistake, structural challenges remain. Labour productivity is down 6% from its 2020 peak. Since 2020, business investment in machinery and equipment has averaged just 2.8% of GDP in Quebec compared to 3.2% in Ontario and 3.3% nationally. These weaknesses are exacerbated by Quebec’s aging population. By 2031, more than 25% of the province’s population will be over the age of 65. This will put pressure on public finances, making it difficult to keep healthcare spending from growing more than 2.6% on average over the next 3 years. That said, Quebec may not be the only one underestimating the impact of aging External link. on its healthcare spending.

2025 is shaping up to be a pivotal year. Exports to the US accounted for 74% of Quebec’s total exports in 2023 (about $87 billion worth of goods). A return to protectionism under Donald Trump would threaten those exports. Here at home, temporary immigration is set to fall dramatically. If Quebec is going to meet the federal government’s 5% temporary resident target, it will have to issue about a third fewer temporary resident permits. With government spending also under a microscope and the province needing to eliminate its $10.8 billion deficit by 2030, Quebec’s economy is facing a number of challenges.

Despite these uncertainties, Quebec has a lot going for it. The household debt-to-disposable income ratio is 150% in Quebec vs. 185% nationally. The province has one of the largest lithium deposits in the world. What’s more, it gets virtually all of its electricity from renewable sources (primarily hydroelectric) and pays much less than the North American average for it. This week’s announced Churchill Falls agreement in principle will allow it to buy more hydroelectric power from Newfoundland and Labrador, securing about a third of the additional power output Hydro-Québec aims to offer over the next decade. Quebec also has a skilled workforce, with 71% of 25‑ to 64‑year‑olds having a post-secondary degree, the highest proportion in Canada. And the province is home to more than 20 public and university research centres. In short, Quebec has much of what it takes to grow wealth.

Quebec’s economic performance this year is a testament to its ability to bounce back quickly from shocks. This resilience will be crucial going forward given the major challenges on the horizon. The Bank of Canada announced a second 50‑point rate cut this week. This will certainly help, but lower interest rates alone won’t be enough. Major investment projects like Hydro‑Québec’s are promising. Unlike major hydroelectric projects of the past, however, they’ll run headlong into labour shortages. The Quebec government is keen to close the wealth gap with Ontario. But to do that, businesses will need to innovate, quickly adopt artificial intelligence and other productivity-enhancing technologies, and invest in more workforce training. Policymakers in Quebec and other provinces will need to keep their focus on longer-term drivers—and learn to look through Donald Trump’s midnight manifestos.