Newfoundland and labrador’s economy, which has been riding the natural resources wave to healthy growth the past few years, is expected to cool slightly in 2012, largely due to reductions in offshore oil reserves that will likely result in lower petroleum revenue projections.
In fact, Royal Bank of Canada is projecting 2.8% real gross domestic product growth while Bank of Nova Scotia is predicting just 1.8% real GDP growth for the province. This is down from an estimated 4% increase in real GDP for 2011. However, looking closer at Newfoundland and Labrador’s economic picture reveals a province with two disparate stories.
On the positive side of the ledger, Labrador looks like Canada’s new frontier thanks to the Muskrat Falls hydroelectric project, the lifting of a ban on uranium exploration and the expansion of mining activities in the Labrador City region.
Expansion of operations by Montreal-based Iron Ore Co. of Canada’s Labrador City mine, along with new mines opened by companies such as Toronto-based Labrador Iron Mines Holdings Ltd., are drawing hundreds of workers to the province’s westernmost region. This growth is expected to continue, with other investors such as Vancouver-based Alderon Iron Ore Corp. gearing up for production within the next two years.
The economic situation on the Avalon Peninsula is similarly positive, thanks in part to construction of Toronto-based Vale Canada Ltd.’s $2.8-billion nickel-processing plant in Long Harbour, which is due to open in 2013. According to provincial government estimates, 1,100 jobs were created in 2011 because this project, along with the expansion of mines in western Labrador and the re-opening of a copper, gold and silver mine by London-based Rambler Metals and Mining PLC in Baie Verte.
The Long Harbour facility, combined with pre-fabrication work for the Hebron offshore oilfield, has resulted in a migration of young workers to the St. John’s region from rural communities.
However, the high growth that propelled the province appears to be slowing. Housing starts in the St. John’s region grew by 6% in 2011 over the previous year, but the latter months proved anemic as new home starts for December fell by 24% compared with November.
What this all means for the province’s fiscal health is difficult to assess, as much depends on the state of world oil prices. The provincial government forecasts a budgetary surplus of $756 million for 2011-12, up substantially from an estimate of $485 million last spring.
Much of the credit goes to higher-than-expected crude prices in 2011. But because government relies so heavily on oil royalties, any serious price declines or unforeseen disruptions in production could result in a reversal in fortunes.
For now, the government seems content to focus on debt reduction, with all windfall revenue directed to this cause. How long the province can keep rolling back the debt while increasing spending, without finding new sources of tax revenue, remains an open question.
Still, the province has other pressing issues. High unemployment has been a fact of life for decades. In fact, despite the healthy economic environment, the projected jobless rate for 2012 is 12% — which is a 2.4-percentage-point improvement on the 14.4% unemployment figure in 2010.
The persistent unemployment problem is mostly a rural issue, and communities continue to reel from the loss of major employers while urban areas prosper. The disparity between economies of the St. John’s region and central Labrador in comparison with the rest of the province is startling, and the trend is expected to become even more pronounced in the coming years.
The decline of the vast rural region of the province is primarily due to continuing problems in fishery, which employs 10,000 people. Ocean Choice International Inc. announced the permanent closure of two processing plants last year due to stagnant prices and changes in global demand that now favour frozen, unprocessed fish.
It is generally accepted by government, fish processing companies and labour unions that further contraction of the fishery is required if the sector is going to be competitive and capable of providing well-paying full-time jobs. IE