Newfoundland and Labrador’s GDP will increase the most in Canada during next two years, report says
Renewed offshore oil production will help boost this province's economic growth
Newfoundland and Labrador is poised for the strongest economic growth in Canada for the next two years, according to a new report from the Conference Board of Canada.
The board’s quarterly Provincial Outlook, released Wednesday, said the province is expected to be the “runaway leader” among Canadian provinces this year as it rebounds from last year’s drop.
The report notes Newfoundland and Labrador’s gross domestic product fell by 4.8 per cent last year on declining oil prices and production, but the economy is expected to rebound with six per cent growth this year and 3.4 per cent next year, top among the provinces in both years.
Boosted by oil
Marie-Christine Bernard, the board’s associate director of the Provincial Outlook, said renewed oil production — after last year’s maintenance at Terra Nova and White Rose, as well as declining production at Hibernia — this year will boost the provincial economy far above the national average of 1.8 per cent growth.
“With both projects now being fully back into production as of last fall, we will see more oil production in 2013,” she said. “There’s still a lot of investment in the province. While investment is slowing down at Vale’s hydromet plant, we’re seeing a ramp-up for investment in Hebron, and, as well, Muskrat Falls, so that will keep investment elevated in the province, so we’ll see another big increase in the construction sector.”
Investment and construction will have ripple effects of job creation and consumer spending, she added.
Still, the GDP drop in 2012 and subsequent strengthening highlights how heavily dependent the provincial economy is on oil, Bernard said.
“It represents a quarter of the economy, so when there is large fluctuation in the oil industry, it tends to influence bottom-line growth for the province,” she said. “But investment is near an all-time high, so there are other sources of growth for Newfoundland and Labrador.”
Another potential economic weak spot is the province’s deficit budget — the report notes only Nova Scotia, Saskatchewan and British Columbia are expected to have balanced budgets this year.
“That could be an area where there could be some concerns,” said Bernard. “The deficit is large in Newfoundland. The government is trying to address the issue in the last budget — there wasn’t a lot of growth in terms of program spending for the province, so this is an area that won’t contribute much to the economy over the near term.”
The strong provincial housing market should be viewed with caution, too, she said, noting it’s cooling off across Canada.
“It’s always hard to predict exactly how steep the correction will be,” she said. “We were forecasting that the housing market was quite elevated in Newfoundland. There were a lot of housing starts, and it looked like maybe a little more than the numbers should tell us there should be. But if there were a large correction, that would take away from growth because you’d have less demand for consumer goods.”
Richard Alexander, director of the Newfoundland and Labrador Employers’ Council, said the report demonstrates how much the private sector is investing in the province.
“It’s driving our economy,” he said, adding that the effects of growth will be seen across the province. “This isn’t just corporations doing well. This economic increase, and Newfoundland and Labrador leading the country in economic growth, that translates into more corporate taxes for the provincial government and more royalties. The study is projecting very strong growth, wage increases. It’s going to continue to support consumer demand over the near term. This is good for the people of the province, not just the corporations.”
Last week, Lana Payne, president of the Newfoundland and Labrador Federation of Labour, pointed to the strong economy and the need for skilled labour in criticizing concessions demanded by Labatt from striking workers at the brewery.
But Alexander said the province isn’t an economic island.
“We need to be competitive,” he said. “So if you have facilities or bottling plants that can’t compete in the global marketplace, then they need to be able to adjust their operations in order to be able to do that. Just because there’s lots of private-sector investment in our province today doesn’t mean that tomorrow there’s going to be. And if the last budget proved anything to this province, it’s that we can’t say the good times in this province aren’t going to roll on forever.”
The government should invest wisely when the economy is strong, and not spend every last dollar, said Alexander.
“We don’t want to get into a situation like we had with this past budget, where government had spent too much and had to cut back, and then the people of the province looked negatively on those things,” he said.
Alexander said the report also suggests concerns about the effect of public-sector cuts on the economy were unwarranted.
Finance Minister Jerome Kennedy did not respond to a request for an interview Wednesday. A spokeswoman for the department said the minister was unavailable.