There may be an economic storm cloud hovering overhead, but Nova Scotia hopes it has a silver lining — or two.

As with all the Canadian provinces, Nova Scotia will feel the effects of the global economic downturn. But, unlike many provinces, those effects may be mitigated.

“Nova Scotia will be experiencing weakening growth in 2009, reflecting a fairly weak global economy,” says Paul Ferley, assistant chief economist withRoyal Bank of Canada in Toronto, “but we expect the province will outperform the national average.”

Nova Scotia’s GDP is expected to improve slightly this year, by 0.08%-0.1%. (That’s far less than 2008’s estimated growth of 1.4%, however.) In fact, Toronto-Dominion Bank has ranked Nova Scotia and Manitoba (see page 24) second among the provinces, in terms of real GDP growth for 2009.

One reason for the upward trend is that Nova Scotia is not exposed to global markets to the same extent that some provinces are.

“Exports of goods and services account for 44% of Nova Scotia’s GDP,” says Naomi Shelton, communications advisor with the provincial Department of Finance in Halifax, “compared with 60% for Ontario and 56% for Alberta.”

A number of other factors are contributing to Nova Scotia’s bluer skies. First, there is one very lucrative homegrown natural resource: natural gas. The Canadian Chamber of Commerce predicts that Nova Scotia’s economy will get a boost this year as construction ramps up on the Deep Panuke Offshore Gas Development Project, whose developers have called it “the most promising development project on the East Coast.”

Natural gas from Deep Panuke, which is located approximately 250 kilometres southeast of the province on the Scotian Shelf, will be processed offshore and transported, via subsea pipeline, to Goldboro, N.S., for further transport to markets in Canada and the northeastern U.S. The natural gas is expected to rise to the surface in 2010 and last for roughly 13 years, with recoverable sales of 632 billion cubic feet. Capital construction costs alone for Deep Panuke are estimated at $700 million, with additional average annual production phase expenditures of approximately $150 million for the life of the project.

In addition to natural gas, Nova Scotia will also benefit from having its eggs in a number of baskets.

“The province is no longer just an exporter of its natural resources, such as fish and forestry products,” Shelton says. “Nova Scotia is mostly a services-based economy, in which 80% of people are employed in services-based industries producing 75% of Nova Scotia’s total economic output.”

Over the past five years, the professional, scientific and technical services sector in Nova Scotia has averaged real GDP growth of 3.4%, well above the 1.6% growth rate for all other industries. Employment in this sector has averaged 3.9% growth over that period.

“Some of the provincial strengths in the current environment,” says Pascal Gauthier, an economist with TD in Toronto, “are a reasonably well-diversified urban economy in the Halifax area, home markets that did not catch fire and that face less downside risk than other parts of the country, and a fairly large-sized public sector, looking at all levels of government combined. Public administration, education and health care, all of which are typically more recessionproof, account for a large chunk [almost 28% altogether] of employment in the province.”

That said, storm clouds could still move in on a number of fronts. Although natural gas will help temper the recession’s impact in Nova Scotia, this rosy forecast is premised on the fact prices for natural gas will stay at their current — and historically high — levels, Ferley says.

Sectors with exposure to international markets are also more vulnerable, especially those that sell to U.S. customers. “The U.S. now accounts for 78% of the value of Nova Scotia’s exports of internationally merchandised goods,” Shelton says. “Those goods relate mostly to natural resources.”

Exports in 2008 are down for Nova Scotia’s key forestry and fish products — and demand for those products will follow the U.S. business cycle throughout 2009.

In addition, a number of major capital projects are not going forward as quickly as expected. These projects are facing a difficult financing and pricing environment, which has led to some delays, Gauthier says. Two of the projects no longer on the fast track are Keltic Petrochemicals Inc.’s multi-billion-dollar petrochemical plant and Maple LNG, a liquefied natural gas facility and receiving terminal.

@page_break@The impact of a more sluggish business climate is higher unemployment, Gauthier says: “By yearend 2009, the unemployment rate will probably reach 9%-9.5%, from 7.8% [as of November 2008].”

However, this is still a far cry from the peak of 14%-15% unemployment seen after the previous two recessions, he adds: “The manufacturing and construction sectors are likely to bear the brunt of job losses in goods-producing industries, while food and accommodation, business services and real estate services will probably shed the most on the services side of the economy.”

Help may be at hand. Nova Scotia Premier Rodney MacDonald has been reassuring the business community that the province will step in to pump up the economy by investing in infrastructure.

An enhanced infrastructure stimulation package is now being developed for implementation over the next two years. IE