Gov't predicts slight contraction of economy in 2012 due to lower oil production

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Daniel MacEachern
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Finance Minister Tom Marshall spoke to the Institute of Chartered Accountants of Newfoundland and Labrador about the province's economic forecast during a breakfast meeting Wednesday morning.

The provincial finance minister is forecasting Newfoundland and Labrador's economy to shrink slightly this year.

Tom Marshall, speaking to a breakfast meeting this morning of the Institute of Chartered Accountants of Newfoundland and Labrador, said declining oil production this year means the government is forecasting the provincial economy to contract 0.2 per cent this year.

"That's totally because the production will be down at those two fields, White Rose and Terra Nova, while the FPSO vessels are in for refits," he told the Telegram after his speech at the Battery Hotel. "The level of (overall) growth in the economy is still pretty high. This is a dip from last year, but we're still high. The economy is still doing exceptionally well."

Total employment is expected to reach another all-time high next year, noted the minister. As well, capital investment is expected to have another year of double-digit growth, and exports are very robust, he said. "More people are working in this province than ever before, their incomes

are high," he said. "Their personal incomes are high, their disposable incomes are high, they have money in their pockets, they have confidence, and we're seeing it in the retail sales, the car sales."

Marshall noted in his speech that private-sector forecasts for the provincial economy – for institutions such as banks – are predicting the provincial economy to grow this year, with an average forecast of about a modest 1.8 per cent.

"I haven't analyzed that. I know when I talk to the economists in the department, they say they know our economy a little bit better," he said.

"I've never gone back and seen how we've done compared to the private sector or kept a scorecard. So it's essentially flat, right? Our gross domestic product is the value of all goods and services produced in the economy. So because the two rigs are gone for 140 days, we're going to have less production, and this is all attributable to that. As soon as they come back, up it goes again."

Marshall dismissed the suggestion the government's erring on the side of pessimism in order to be able to make a mid-year good-news announcement that the economy is doing better than forecast. That happened last year when planned maintenance on the Terra Nova was deferred to 2012, meaning production – and revenues – were much higher than expected. When volatile oil revenues account for so much of the province's revenue,  said Marshall, it's difficult to predict exactly what it will be, but the government isn't lowering expectations in order to make a good-news splash later this year.

"We don't do that. I remember (former federal finance minister and prime minister) Paul Martin used to get accused of doing that," he said. "We don't do it deliberately. If I want to know what production is going to be, I go to the CNLOPB (Canada-Newfoundland and Labrador Offshore Petroleum Board), and I say, 'What is production going to be?' They tell us. Then we go back and say, 'Are you sure?' and we question and we give our views. They're the regulators; if they then come back and say there's another 20 million barrels, or another 12 million barrels, my first reaction is, 'How can you be out by that much?' So I ask them to come in and explain it to me, and they did. And it can happen just like that, either way."

 

Organizations: Institute of Chartered Accountants of Newfoundland and Labrador, Battery Hotel, Canada-Newfoundland and Labrador Offshore Petroleum Board

Geographic location: Terra Nova, Newfoundland and Labrador, White Rose

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