Quebec's economic fortunes brightened towards the end of 2016 as unemployment reached historic lows, and forecasts suggest the good news will continue this year.

But economists are also warning the province's growth prospects — already modest to begin with — are vulnerable to whatever volatility may accompany the presidency of Donald Trump.

In a series of forecasts released last month, several leading financial institutions sketched a generally positive outlook for Quebec's economy.

Desjardins, TD and the Royal Bank all predict real GDP growth of 1.6 per cent for 2017, a marginal improvement over 2016, which is expected to be around 1.5 per cent when the final numbers are counted.

Quebec's economy stumbled somewhat in the first half of last year. But consistent recent gains in manufacturing, finance and real-estate, among other sectors, has economists bullish about the coming months.

It is, in particular, difficult to ignore Quebec's unemployment rate, which dropped to 6.2 per cent by November, the lowest its been since Statistic Canada began releasing the figure in 1976.

"The tides in Quebec's economy seem to have turned, with more positive results rolling in for some time now," Desjardins said in its December economic outlook.

"Since July, Quebec has gained 71,900 new jobs — a 1.8 per cent increase. In contrast, job growth in the other provinces was only 0.5 per cent for the period."

Quebec Finance Minister Carlos Leitao has hinted his next budget will contain more public spending. (Jacques Boissinot/The Canadian Press)

Gains from public spending

The rosy forecasts for 2017 are driven, in part, by the expectation that government spending will stimulate growth — a change from recent years.

Philippe Couillard's government spent the first part of its mandate dramatically scaling back government expenses. That, said RBC, acted as more of a "headwind" to provincial GDP growth.

But in his fall economic update, Finance Minister Carlos Leitao revealed he was pumping $2.2 billion back into the economy, the frugal years having left the government with a small surplus.

​With the government's books now balanced, economists believe Leitao's next budget will contain further reinvestments.

TD said it is anticipating more money for public infrastructure, contributing to activity in the industrial construction sector. RBC noted the federal government is also planning to release more infrastructure funds in its next budget.

For his part, Leitao himself hinted his spring budget would carry forward the cautious investments first announced in his last economic update.

"We will take a targeted approach to reinvestment," he told The Canadian Press in a recent interview.

"We will not open the spending taps without thinking. No. We we will target education, health care and economic development."

Ah yes, the wildcard

So far markets have reacted well to Donald Trump's election, but economists are worried about his protectionist campaign rhetoric. (ablo Martinez Monsivai/The Associated Press)

The other major drivers of growth this year are expected to be exports and manufacturing, long-standing pillars of the Quebec economy that have underperformed at times in the recent past.

Optimism about these sectors largely reflects the belief that the economic situation south of the border will continue to improve.

TD is predicting U.S. economic growth to reach 2 per cent for 2017-2018, and will translate into higher demand for Canadian manufactured goods.

Already in the final months of 2016, Quebec manufacturing contributed to a slight surge in the provincial GDP, RBC's forecast said.

But if Quebec's growth in 2017 is dependent on a better American economy, the incoming president represents something of a wildcard.

Quebec's economic fortunes for the coming year are tied to the continued strength of the U.S. economy. (Ryan Remiorz/The Canadian Press)

Trump's campaign struck a decidedly protectionist tone and the possibility that NAFTA could be renegotiated adds another element of uncertainty.

"A great deal of protectionist rhetoric was a big part of the presidential campaign, which could be harmful to Canada's manufacturing and exporting regions should such policies be enacted," TD warned investors.

Moreover, the bank's economists point out that bond yields in the U.S. have risen since the election, based on inflation fears (possibly linked to Trump's spending promises).

That, in turn, could drive up mortgage rates in Canada, where federal officials have already taken steps to tighten home-lending rules.

"Not everything is rosy," Desjardins' forecast said about the Quebec economy.

"[T]he introduction of new federal measures to restrict residential credit combined with the uptick in mortgage rates should put the brakes on the resale and residential construction markets."