As a recessionary whirlwind whips through Ontario’s automotive heartland, the economies of Canada’s two petro-provinces are reaping the unwelcome gifts that come with blacked-out manufacturing plants and plunging oil prices.

Prospects for Newfoundland and Labrador closely mirror those of Alberta, as both provinces rely overwhelmingly on the oil industry for jobs, business growth and government revenue.

The ratcheting down of oilsands projects, such as the mothballing of Suncor Energy Inc.’s $20.6-billion Voyageur expansion, directly affects hundreds — if not thousands — of Newfoundland and Labrador’s workers, many of whom commute between St. John’s, Nfld., and Fort McMurray, Alta. With pink slips replacing pay envelopes, the ramifications are beginning to hit home.

Some communities on the Rock, such as Stephenville, had been cushioned from economic disaster by Alberta’s demands. When their main sources of employment — in Stephenville’s case, a paper mill that had closed in late 2005 — skilled workers were eagerly snatched up by Alberta-based recruiting firms. The government of Newfoundland and Labrador was spared the messy task of finding new jobs for those who had been displaced.

Equally important as the jobs themselves were the remittances sent back east by migrant workers, which propped up the commercial sector of rural communities. Sales of pickup trucks, SUVs and recreational vehicles continued to climb throughout 2008, even as sales throughout Central Canada slid during last summer’s period of US$150-per-barrel oil.

New-car sales in 2008 in New-foundland and Labrador continued to exceed 2007 month-to-month figures until November, when sales dropped to 1,662 units — the lowest number in the province for that month since 2004. A measure of the health of the automotive market came in January, when the St. John’s Chrysler and Mercedes dealership slid into receivership, with creditors claiming $19 million in unpaid bills.

A string of bad-news stories has dogged the province since last fall, the worst being the pending closure of the AbitibiBowater Inc. paper mill in Grand Falls-Windsor. The century-old plant is the only significant private-sector employer in central Newfoundland, providing hundreds of jobs for mill workers and loggers. The port town of Botwood will also lose a significant portion of its economic base, as freighters will no longer load paper from docking facilities there. For those who are losing their jobs, Fort McMurray is no longer an option.

Meanwhile, uncertainty swirls over Vale Inco’s planned nickel processing facility, which is slated for Long Harbour on Newfoundland’s east coast. Unexplained delays by the company in filing its development plan with the provincial government have led to concerns about the future of the $2.2-billion plant.

According to the original 2002 timetable, Vale Inco was to have submitted its final development plan by the end of December 2008. The province then extended the deadline by three weeks, a date now exceeded by the company.

Questions also persist about the commercial fishery this year, as processing companies grapple with the combined effects of poor prices in the U.S. and the collapse of Iceland’s banks, which had provided operating credit for several of the province’s largest firms.

The credit situation is so daunting that the Fish Food and Allied Workers Union — which is not known for its sympathetic attitude toward processors — raised the alarm. The union is demanding that governments step in to assist the companies; the alternative being that some fish plants may remain shuttered this year.

Prices for snow crab, the mainstay of Newfoundland and Labrador’s fishing industry, are looking weak, although this could change by the time the season opens this spring. The industry’s concerns originate with the U.S. restaurant market, which has been the mainstay for both lobster and crab. The recession has already hurt lobster prices, because of lower demand south of the border. There are fears this will extend to crab.

So far, this list of economic challenges has not greatly affected projections for Newfoundland and Labrador’s economy for 2009, which, despite the dark spots, is expected to outperform all other provinces except Saskatchewan. (See story, below.) Bank of Montreal economists are forecasting 0.7% growth in real gross domestic product for the province, while Bank of Nova Scotia is predicting 0.4%.

The basis for this optimism lies in the province’s oil industry. Although annual oil production peaked in 2007 — gross output actually declined by 17% in 2008 — and the billionth barrel of crude was drawn from the three existing offshore fields this January, the industry is expected to keep the provincial economy buoyant during the next decade.

@page_break@Even with US$40-per-barrel oil, the provincial government is expected to record a surplus for fiscal 2009-10, although Finance Minister Jerome Kennedy is warning that oil price fluctuations could push the government into deficit territory in the following fiscal year.

The Newfoundland and Labrador government has prepared for bad times by using unexpected windfalls in oil royalties to reduce its debt; net debt is now expected to come in at $9.2 billion for 2008-09, compared with the $10 billion forecast in the budget last spring.

Perhaps most timely for the province is construction of the Hebron oil-production platform, which is set to begin in 2010, thereby providing fabrication jobs for hundreds of workers at yards and factories throughout the province. Hebron is expected to provide 1,000 direct jobs during its construction stage, and to generate $16 billion in royalties to the province during its 25-year lifespan.

If both Hebron and the Long Harbour nickel-processing plant proceed as planned, then Newfoundland and Labrador is expected to weather the recession better than most other provinces.

Although these are reasons for optimism, thanks to the oil and mining sectors, the province has so far failed to diversify its economy away from production of commodities. Manufacturing, in particular, remains weak, aside from those companies supplying the oil companies, and is centralized almost exclusively in the St. John’s region. An indicator of this is the unemployment rate, which is forecast to remain Canada’s highest, at 12% to 13% until at least 2010. IE