A new report from a Canadian think tank says the economic heart of Canada continues to be found in the western portion of the country.

According to the Conference Board of Canada, cities in western provinces will see the most economic growth this year, lead by Saskatoon, Calgary and Edmonton. Meanwhile, austerity measures and stagnant economies will limit growth in other parts of the country.

Rising commodity prices and expanding resources sector in the western part of the country is having a profound impact on the cities. Massive amounts of wealth and job creation have been seen in the western part of Canada over the past decade, and the spillover affect has been profound in some of Canada's cities.

Real GDP Growth (per cent) City 2011 2012 (forecast) Saskatoon 4.8 3.6 Calgary 3.1 3.5 Edmonton 4.4 3.2 Regina 6.1 2.7 Vancouver 3.1 2.5 Winnipeg 1.7 2.4 Toronto 2.5 2.3 Halifax 3.0 2.2 Quebec City 2.4 1.9 Hamilton 2.4 1.8 Montreal 1.5 1.7 Victoria 1.4 1.6 Ottawa-Gatineau 1.4 1.6

The West is the best

Even though Saskatoon's economic expansion is expected to slow from 4.8 per cent in 2011 to 3.6 per cent in 2012, that still tops the country. The report highlights Saskatoon's growing housing and manufacturing sectors, aided by commodity expansion in other parts of the country.

Even with the economic growth, employment gains have not been entirely realized in the city. The total number of jobs in the city actually fell by nearly one per cent in each of the last two years.

The Conference Board says anecdotal evidence suggests a mismatch between the skills needed by employers and those available in the workforce. However, the report says employment gains should improve this year and reverse the downward trend.

Likewise, an improvement in the construction sector should give Calgary's economy a boost. The Conference Board expects the city's economy to grow 3.5 per cent this year, second most in the country. The report also expects greater consumer spending and job creation this year.

Edmonton's economy is projected to grow 3.2 per cent this year, third most in the country. Like Calgary, Edmonton is also benefiting from rising commodity prices and expansion of the oil and gas industries in the province. However, the Conference Board says Edmonton's other industries show some weakness and will likely limit growth this year.

Western cities continue to dominate the top of the Conference Board's list, with Regina, Vancouver and Winnipeg all expecting better than two per cent growth this year.

The East with the least

Eastern Canadian cities should still enjoy economic growth this year, but far less than their western peers and mostly below the national average.

The report says Toronto's economy will grow 2.3 per cent in 2012, down from 2.5 per cent last year. Meanwhile, the economies of Quebec City, Ottawa-Gatineau, and Montreal will all grow less than two per cent this year as the federal and provincial governments cut their budgets and reduce public sector spending.

Weaker economic growth will also be felt by these cities because of declining construction output. Toronto's construction sector is expected to decline by 0.6 per cent, while Ottawa-Gatineau is expected to see a 0.7 per cent drop.

Overall, the Conference Board expects Canada's economy to grow 2.1 per cent in 2012, a slight drop from 2.3 per cent growth last year. Between 2013 and 2016, it also expects the economy to grow at an average rate of 2.6 per cent annually.

Risks to growth

While the Conference Board expects the economy to grow this year, its forecast is not without downside risks. Notably, the report says the European debt situation will force governments to drastically curtail spending, which would in turn limit demand for Canadian goods and services.

The Conference Board also says its Canadian growth projections are based on what it calls an "at best" assumption regarding Europe. While fiscal stability has been reached for now, the report says "the roller-coaster ride that has prevailed since mid-2011 is sure to continue through 2012."

While the United States has seen solid employment gains over the past year, the Conference Board is still concerned about an economy operating well below its potential. Persistently low interest rates have yet to put a floor under the American housing market, an issue that continues to hurt consumer confidence and spending. However, the report says much of the worst is behind the United States and economic growth should hit 2.7 per cent this year.

The same persistently low-rates in the United States may have a different impact on Canada though. The report warns that Canadian debt levels continue to grow and the overall savings rate has suffered as a result. "While the situation is not yet desperate," the report says, " … going forward, household spending will have to align more closely with relatively modest income gains."