Although Canada’s three territories are sitting at the top of the world, they are physically isolated from but hardly immune to the global economy. They are, however, well positioned to prosper despite the spectre of a U.S. recession. In fact, a downturn south of the border might even be a good thing for their economies.

For now, at least, resources prices seem all but immune to the U.S. slowdown, as demand for energy and materials continues to be driven by the rapid industrialization of the developing world, led by China and India. In the Yukon, Northwest Territories and Nunavut, US$100 a barrel for oil and US$900 an ounce for gold have made resources the big driver of their economies.

“To the extent that the U.S. recession lowers demand for resources, that is bad news for the territories,” says Eric Howe, an economist with the University of Saskatchewan in Saskatoon who studies Canada’s Arctic economy. However, he finds little reason to expect the economic brakes to be applied anytime soon: “Given world demand and the increasing demand from the developing world, it is hard for me to imagine that a reasonable-sized recession will result in much lowering of resources prices.”

The reason that a recession in the U.S. could be good news is because of what the territories — the NWT, in particular — need, which is people.

“Everyone who wants a job has one,” Howe says. And if a U.S. recession does occur, he adds, it will “disproportionately hit” Ontario and Quebec and could prompt workers to move west and north.

With huge land masses and tiny populations, the economies of Canada’s three territories hinge on the influx of capital spending by resources companies and regular cash infusions from the federal government.

Here’s a closer look at the three territories:

> Yukon Territory. The territorial government, in its May 2007 economic forecast, reported that economic output, or real gross domestic product, grew at an annual rate of 2.9% in 2006 to $1.29 billion; it also forecasted similar economic growth of 3% in 2007 to $1.33 billion.

The Yukon government counts mining and tourism as the territory’s two main industries. In 2006, spending on mineral exploration totalled $82 million, up from $49 million the previous year. Spending was forecast to total $123 million in 2007 and the government has said it expects higher exploration spending yet again in 2008. Five companies alone expect to spend $70 million on exploration in 2008, the energy and resources ministry says.

The Yukon is also poised to benefit from the construction of a proposed natural gas pipeline from Alaska. If it’s built, 760 kilometres of the pipeline, 27% of it, would run through the Yukon.

Tourism has suffered as a result of the decline in the U.S. dollar, as the number of visitors fell by 2.7% in 2006; that decline was probably even greater last year due to the stunning rise of the loonie.

Statistics Canada’s GDP figures for the years 2001 through 2006 show the Yukon’s economic output has risen every year, with annual gains of between 3% and 7.8% during that span.

Average weekly earnings are higher in the Yukon and the NWT than anywhere else in Canada, reflecting the higher cost of living there and the premium that employers must pay to attract skilled workers north of the 60th parallel. According to Statistics Canada, average weekly earnings, health care and social assistance in the Yukon was $848.91 in 2006, 5% higher than the year prior and, in comparison, almost 18% higher than British Columbia’s average weekly earnings for 2006.

With a labour force of just 16,400 (and total population of 32,714), the Yukon’s unemployment rate is prone to wide swings. In December 2007, just 900 people (or 5.5%) were unemployed; however, that was more than double the 2.5% unemployment rate of a year earlier.

> Northwest Territories. Since 1999, the NWT has boasted the fastest-growing economy in Canada. Its average growth rate has been three times faster than the country’s economy as a whole, and the NWT has grown twice as fast as other resources powerhouses such as Alberta and Newfoundland and Labrador.

And, as Howe points out, about the only thing that might slow this “north of 60” economy down is a lack of workers.

@page_break@With dramatic diamond finds — the NWT has two of just three commercially producing diamond mines in North America — the mining sector now makes up about 50% of the territory’s economy. That contribution will only increase. The NWT’s third diamond mine, De Beers’ $975-million Snap Lake project, is just now coming onstream after delays and cost overruns of almost $300 million. A potential fourth mine is undergoing environmental assessment.

Pressure on the already tight labour market in the NWT could increase if the long-awaited Mackenzie Valley pipeline proceeds. Virtually the entire length of the proposed 1,200-km natural gas pipeline traverses the NWT, with just a short section snaking into northern Alberta. The project would include natural gas gathering and processing systems, leading to construction cost estimates of $10 billion. The NWT could be producing 13% of Canada’s natural gas by 2020, according to federal projections.

The NWT’s country-leading average weekly earnings reflect the territory’s scarcity of labour and higher cost of living. Statistics Canada reports that average weekly earnings, health care and assistance for 2006 was $1,220.88, almost double Quebec’s average of $636.31. Unemployment as of Dec. 31, 2007, was 6%, up slightly from 5.9% the year earlier. The NWT’s 70.8% rate of employment at the end of 2007, long the highest in Canada, is now slightly behind the Yukon’s rate of 71.4%.

The NWT’s potent resources mix of diamonds, gas, oil and gold is reflected in its rapidly expanding GDP. In 2002, GDP totalled $3.03 billion. But by the end of 2006, it had ballooned by almost 37% to $4.15 billion.

Local leaders, however, are mindful that the economic contributions from resources development in the North can be fleeting, as jobs can be filled by outsiders and economic benefits dissipate as soon as a resource is exhausted. The Giant and Con gold mines near Yellowknife yielded 12 million ounces of gold between 1938 and 2004. However, adjacent to those two mines is a community of 180 people with an unemployment rate of 20% — four times the territory’s average.

The federal government now provides about 70% of the NWT’s total revenue. With its latest resources boom, the territory is looking to take greater control of its non-renewable resources and notes that most of the benefits of the economic boom have gone to Ottawa and elsewhere rather than NWT coffers. The territory’s government contends that “90¢ to 95¢” out of every dollar in government revenue from resources developments flows out of the NWT, and leaders want a greater share of the revenue.

> Nunavut. Carved out of the vast NWT on April 1, 1999, it should come as no surprise that Nunavut faces many of the same opportunities and challenges as the territory of which it was once a part.

Nunavut hosts a tiny, mostly First Nations population (24,920, or 85%, are Inuit) scattered over vast Arctic lands (two million square kilometres, or about 20% of Canada’s land mass). Its population is also Canada’s youngest, as more than 50% of inhabitants are under the age of 25.

Unemployment for Nunavut’s 10 largest communities was 8.2% for the month ended Dec. 31, down from 10.2% during the same period in 2006. The territory’s GDP, as measured by Statistics Canada, has steadily risen for the past five years to $1.18 billion in 2006 from $951 million in 2002. The Nunavut government forecasts that its GDP will post a 4.7% average annual compound growth rate for the years 2006 through to 2010. Average weekly earnings, however, are among the lowest in Canada: $658.21 for 2006.

Although most of Nunavut’s revenue — more than 92% — still comes from regular federal government transfers, mining is shaping up to be a major economic driver.

Nunavut officials report that mining exploration spending exceeded $175 million a year for the years 2004, 2005 and 2006, and that 65 exploration companies were active in the territory in 2006. Those companies are looking for everything from diamonds and gold to iron, copper, nickel, zinc and precious gems.

Nunavut currently has four mining projects underway, including Tehera Diamond Corp.’s recently opened Jericho diamond mine, the first new mine opening in Nunavut in the past 25 years. IE