There is a saying in Nova Scotia: “If you don’t like the weather, just wait five minutes and it will change.” The same, many believe, applies to the province’s economy.

While it may be difficult to forecast precisely what lies ahead, especially in the wake of an economic slowdown in the U.S., Nova Scotians should prepare for turbulence, says Graham Steele, a member of the legislative assembly and the provincial NDP finance critic.

“Any slowdown in the U.S. is likely to have a significant impact on Nova Scotia,” Steele says. “The Nova Scotia economy is quite open, meaning that we do a lot of import and export business. So, we tend to do well when the Ontario economy is doing well, which in turn does well when the U.S. economy is doing well.

“Of course, the same is true of slowdowns,” Steele continues. “If the U.S. and Ontario start hurting, it’s not long before we feel the pain.”

One area already severely dampened is the N.S. forestry sector, which is worth more than $1 billion in exports each year. The sector, Steele says, is suffering from the effects of a high Canadian dollar.

“A slowdown in the U.S. housing sector,” he says, “would be a double whammy for an already hurting industry.”

Sunny skies are unlikely to break through any time soon for this industry, says David Chaundy, senior economist with the Atlantic Provinces Economic Council in Halifax. “It’s not going to get any better this year,” he says. “Some mills are closing down temporarily. It’s unclear whether they’ll open up again.”

Two other sectors likely to tumble in the wake of a U.S. economic slowdown are fisheries and tourism. “Our fishing sector is suffering from a high dollar,” Steele says, “and any weakness in exports to the U.S. will hurt.”

In 2006, the latest year for which figures are available, Nova Scotia’s fishing exports were worth more than $635 million, placing the province first in the country in this sector.

However, 2006 marked the fourth consecutive year that fish exports from the province have declined, plummeting to $635 million from approximately $847 million in 2003.

Tourism is another key sector for the province that is likely to find itself under an economic rain cloud. “U.S. travellers are choosing to travel elsewhere,” says Amy Goldbloom, an economist with Royal Bank of Canada in Toronto. “They don’t get the same bang for their buck [in a visit to Nova Scotia].”

The N.S. government is counting on a new $5-million tourism marketing campaign to counterbalance any negative impact from a U.S. slowdown. Last year, by the end of October, Nova Scotia welcomed more than 1.9 million visitors, up by 2% over the same period in 2006, according to the province’s Department of Tourism, Culture and Heritage. Room-nights sold were also up by 2% province-wide. The preliminary revenue estimate for the current fiscal year is $1.3 billion, an increase of 2% over the previous year.

Housing starts, one important measure of a boisterous economy, are difficult to forecast for Nova Scotia. Atlantic Canada’s housing market generally is expected to soften in 2008, according to a new housing report from RBC economists, as construction activity gears down.

However, housing markets in Nova Scotia (and New Brunswick) are expected to put in stronger performances than in other Atlantic provinces as a series of major capital projects begin construction, spurring new job opportunities and growth in the region.

Those capital projects are also expected to present more employment opportunities. As these jobs become available, they should help offset the outflow of workers who have been moving out of the province over the past few years. The more workers stay put, the more the province can rebound from a U.S. slowdown.

Every cloud has a silver lining, of course and, for Nova Scotia, it may well be major capital projects — particularly the Deep Panuke offshore natural gas field and the Keltic Petrochemicals plant. Both projects, notes RBC’s Goldbloom, “require significant investment in the local economy.”

Developing Deep Panuke, about 250 kilometres southeast of Nova Scotia, is estimated to cost $700 million, and production is expected to be online by 2010. The EnCana Corp. project will produce and process gas offshore and transport it by undersea pipeline to Goldboro, N.S., for distribution to markets in Canada and the northeastern U.S. Deep Panuke will mean a guarantee of 1.35 million hours of work in Nova Scotia, with at least 850,000 hours of that work to be done by Nova Scotians.

@page_break@“This project not only represents new activity in our offshore, more people working and more investments,” Energy Minister Richard Hurlburt said in a release, “but it will also mean more interest in our resources.”

Economists agree that the project is significant — and well insulated. “Deep Panuke will not be directly affected by a U.S. slowdown,” says Chaundy.

Keltic Petro-
chem-icals is developing a liquid natural gas plant in Goldboro in concert with key partners. The $4.5-billion project, which has been under development for five years, will serve the Canadian and U.S. natural gas markets. It consists of a world-scale petrochemical plant and related utility and off-site systems.

These are two of the major projects that will protect the province this year from a U.S. slowdown. Total capital expenditures in Nova Scotia in 2008 are expected to reach almost $6.4 billion, a projected increase of 3.5% over the previous year and significantly above the previous five-year average
of 1.7%.

While the skies overhead for the province’s manufacturing sector are not exactly clear, Nova Scotia is a little less vulnerable on this front because, Goldbloom says, the province’s gross domestic product is not heavily dependent on this sector. Only 9% of Nova Scotia’s GDP is linked to manufacturing. In neighbouring New Brunswick, this figure is 16%; in Ontario, it is 20%.

In a similar vein, while Nova Scotia’s exporters are likely to be hurt by a U.S. slowdown, there are fewer of them — in the overall economic scheme of things — than in many other provinces. Approximately 25% of Nova Scotia’s GDP comes from international exports; in Ontario, this figure is double that amount.

Other numbers also paint an important and, perhaps, prescient picture.

Nova Scotia’s real GDP is forecast to increase by an impressive 2% this year, the highest projection for any Atlantic province and mirroring estimated growth in Nova Scotia in 2007. In the past five years, the province’s GDP has grown by 1.3% annually, according to TD Bank Financial Group.

The province’s consumer price index is also expected to hold steady in 2008, at 1.7%. That is a slight dip from this past year, when the CPI grew by an estimated 1.8%. For 2003-07, the average annual increase in the CPI was 2.4%.

Retail sales, as well, are expected to weather any economic storms moving in from the U.S. Retail trade in Nova Scotia is expected to increase by 3.8% this year. Last year, growth was an estimated 3.9%. Since 2003, the average annual growth in retail trade has been 3.4%.

The N.S. unemployment rate is also holding relatively steady and is expected to drop this year. In 2007, it was 8%. This year, TD economists expect the unemployment rate to dip to 7.7%.

The unemployment rate for Ontario, in comparison, is expected to be 6.4% in 2008; Alberta and Saskatchewan, 3.8%; and Newfoundland and Labrador, 13.2%.

New and growing sectors are adding to the employment boom in Nova Scotia, and further growth is anticipated in 2008 — in particular, the burgeoning financial services sector in Halifax.

In 2007, three Bermuda-based financial services firms opened offices in Halifax: Citco Fund Services (Bermuda) Ltd., a leading international provider of administrative services to the hedge fund industry; Olympia Capital (Bermuda) Ltd., one of the world’s largest hedge fund administrators; and Butterfield Fund Services (Bermuda) Ltd., which provides fund accounting and administrative services to mutual funds, international pension funds, offshore hedge funds and other alternative investment vehicles.

New York-based insurance giant Marsh Inc. has also recently set up shop in Halifax.

All four firms are planning for significant growth. Citco, which has 3,200 staff worldwide and $600 billion in assets under management, opened its doors with five staff in February 2007. Forty people are now on the payroll in Halifax.

“The office can hold 180,” says Scott Montreuil, senior manager with Citco, “and we want 300 to 400 staff in the next five to seven years.”

Marsh, which employs 26,000 people in more than 100 countries, had only one employee in Halifax a year ago. Now it has 40. That number, says Patrick Ferguson, Marsh’s assistant vice president, is expected to hit upward of 150 people.

At nearby Butterfield, the appetite for talent is just as voracious. In March 2007, there was a single employee in the company’s newly opened Nova Scotia office. Now, notes Sylvain LaCoursière, Butterfield’s managing director, there are 30.

The province is still forecasting a higher budget surplus for this fiscal year but has had its unallocated surplus — the amount available to cover spending and revenue pressures for the rest of the year — slashed to $2.3 million from $15.4 million.

“There is very little room to cover any other negative changes in our budget,” Finance Minister Michael Baker admitted in a release.

Those changes could well result from a U.S. economic slowdown.

“While I am pleased to be able to say that we do not own any asset-backed-commercial paper in our portfolio,” Baker added, “I cannot say exactly how the international subprime-mortgage effect will fall out over the coming weeks and months — or whether it will affect us at all.

“I can say,” he continued, “that Nova Scotia’s economy continues to grow at a steady pace — if a little slower than we expected.” IE