Oil declines deflate economy: RBC

Moira Baird
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RBC forecasts modest growth for province in 2010

As crude oil pumps, so does the provincial economy, according to the latest forecast by RBC Economics.

The Royal Bank's economics department says the province's economy shrank by 3.5 per cent thanks to a 16 per cent decline in offshore oil production during the first seven months of this year.

Gros domestic product (GDP) - which is the total value of goods and services produced in the province - dropped from almost $19.7 billion last year to $19 billion so far this year.

As crude oil pumps, so does the provincial economy, according to the latest forecast by RBC Economics.

The Royal Bank's economics department says the province's economy shrank by 3.5 per cent thanks to a 16 per cent decline in offshore oil production during the first seven months of this year.

Gros domestic product (GDP) - which is the total value of goods and services produced in the province - dropped from almost $19.7 billion last year to $19 billion so far this year.

RBC is forecasting a small rebound in provincial GDP in 2010 as the economy grows by two per cent.

That's down from its earlier forecast of three per cent growth next year.

"The province does get buffeted by fairly wide swings in the growth rate, given its increasing dependence on oil production," said Paul Ferley, assistant chief economist for RBC.

"So, unfortunately, in the next couple of years that factor's probably going to restrain resulting growth - coming in at the low-end of the growth projections among all 10 provinces."

The Hibernia oilfield gets much of the credit for the province's oil-production decline this year.

"Offshore oil output has dropped by close to 16 per cent year-over-year in the first seven months due to a shutdown at Hibernia in May and June to perform maintenance work and reduced production arising from the maturation of existing fields," said RBC's report released Wednesday.

"Mining production is also down significantly amid weak global demand for metals and labour disruptions at the Voisey's Bay nickel operation."

As global demand increases for base metals, such as nickel and iron ore, Ferley expects a rebound in mining activity in the province.

The same doesn't apply to oil production for the next couple of years.

"It looks like oil production will likely remain weak next year, though not as quite as big of a dip as we're expecting this year" said Ferley.

First oil at North Amethyst is scheduled for early next year as part of the White Rose oilfield expansion.

Ferley said it will offset some of the natural production declines at all three Grand Banks oilfields.

So far this year, oil prices averaged $60 per barrel of crude. Ferley said RBC is predicting crude prices will average $77 per barrel next year.

Megaprojects, such as the Long Harbour nickel processing plant, Hebron and continued expansion of White Rose, will add strong capital spending to the provincial government's ongoing $800-million infrastructure program.

Elsewhere, said RBC, the economy continues to grow, despite declines.

"Consumer spending and residential investment are increasing from 2008, although the pace of housing starts has moderated since the spring," said the report.

Retail sales, the bright spot in the provincial economy in recent years, dropped slightly, by 0.9 per cent compared with last year's more than $7 billion worth of sales.

Housing starts decreased by 4.1 per cent compared with last year's high of 3,233 new homes under construction throughout the province.

So far this year, 3,100 new houses are under construction.

mbaird@thetelegram.com

Organizations: RBC, Hibernia

Geographic location: White Rose, Long Harbour, Hebron

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  • Wait...
    July 02, 2010 - 13:14

    LIES, all LIES! Danny would never lead us wrong. He promised all of us that we are a have not no longer province. We have more jobs here than people and we need to import them from Alberta.
    Seems like he is cutting more than he is creating, so I guess it is Danny who has led us all astray after all.

  • Wait...
    July 01, 2010 - 19:53

    LIES, all LIES! Danny would never lead us wrong. He promised all of us that we are a have not no longer province. We have more jobs here than people and we need to import them from Alberta.
    Seems like he is cutting more than he is creating, so I guess it is Danny who has led us all astray after all.