Things may be looking up for Nova Scotia. However, its economy will wane before it expands significantly.
“For 2012, we have the province underperforming the national average,” said Paul Ferley, assistant chief economist with the Royal Bank of Canada in Toronto. “But the picture changes materially when we get to 2013.”
In fact, Ferley says, RBC is forecasting that Nova Scotia could outperform the national average by a percentage point that year.
The province is planning for a slight dip in its economic performance this year. “The Nova Scotia economy is steady,” says Finance Minister Graham Steele. “Like all other provinces, we have revised our growth forecast for 2012 downward. There is still a lot of uncertainty in the global economy.”
Although the future may look relatively promising, Nova Scotia is still grappling with some major obstacles. It has one of the highest debt loads on a per capita basis in the country, and tax rates are also among the country’s highest.
Unemployment is sitting at around 7.8%. The province’s pulp and paper industry, once a reliable mainstay, is struggling, with shutdowns, cutbacks in production and layoffs at several major mills in 2011.
However, RBC is forecasting that real gross domestic product growth will rise to 1.6% for 2012, up from a weak 1.3% last year but below that expected for the national average.
But looking further ahead to 2013, GDP growth is expected to accelerate to 3.5% as benefits from new industrial projects kick in.
Topping the list of those new undertakings is the $25-billion federal contract awarded to Irving Shipbuilding Inc. to construct the country’s next fleet of combat ships. “This [project] is massive,” said Ferley. “This is a real boost to the economy.”
This contract — the largest in Canadian history — is expected to increase Nova Scotia’s GDP by roughly $900 million over the course of its 30-year duration. During peak-production years, roughly $265 million in additional tax revenue is expected to flow into provincial government coffers; 11,500 jobs, both direct and indirect, are forecast.
The landmark deal already is having an effect, and that effect will be magnified over the longer term, says Steele: “It had an immediate, positive impact on optimism. It will represent a permanent boost in GDP of 2.8%. The benefits will be spread around the province, the region and the country.”
Revenue from offshore oil and gas is also getting a shot in the arm. RBC’s most recent provincial outlook notes that the Deep Panuke offshore natural gas project is scheduled to come online in the second quarter of this year, which will provide a significant boost to natural gas production. However, the largest annual gain will be seen in 2013, when output will reach full capacity and the field will see its first full year of production.
The provincial finance department’s most recent update is already rosier, having revised its prediction — upwards — for offshore royalties this fiscal year to $143.2 million, an increase of roughly 30% over previous predictions.
Calgary-based Shell Canada Ltd. also has announced it will inject $970 million into Nova Scotia’s economy through exploration spending over the next six years, a record for Atlantic Canada’s oil and gas industry. “This is a very substantive investment by Shell in the offshore,” says Steele. “It is the result of survey work done by the government. We can lay the groundwork.”
What is not so rosy is the province’s burgeoning debt, the focus of the auditor general’s most recent report. At the end of March 2011, Nova Scotia’s debt stood at $12.8 billion; it is projected to be $13.5 billion at the end of this fiscal year. The province also forecasts a deficit of $365.2 million for 2011–12.
Nova Scotia’s economic good news will be particularly positive for the Halifax area. “Growth will be dominated by Halifax, which has become the economic engine of the province,” says Fred Morley, executive vice president and chief economist with the Greater Halifax Partnership. “This year, it will account for more than half of the province’s economy. Within two or three years, it will account for more than half of the employed labour force in Nova Scotia.”
Still, greater efforts are required to create conditions for growth, Morley adds: “We have to do more to turn red tape into a red carpet for business. Businesses have to address productivity gaps with Canada and with our main export markets.” IE