Province reverts to long-term growth

Although Newfoundland and Labrador suffered an economic setback in 2009, the period will be soon seen as “a breather” as the province reverts to long-term growth, suggests Wade Locke, an economics professor at Memorial University in St. John’s.

Despite the optimism, there’s no denying that the recession has had a significant impact on the province. Demand for certain exports dropped: the Atlantic province’s fisheries and mines were affected by lower demand for shellfish and minerals, respectively; and the forestry sector had to deal with the backlash from the dismal U.S. housing market. Additionally, Newfoundland and Labrador had to contend with the inauspicious timing of a slowdown in oil production due to maturing offshore sites, notably Hibernia, White Rose and Terra Nova.

In fact, crude oil production, which traditionally accounts for about 20% of the province’s real gross domestic product growth — fell by 20% in 2009 vs 2008, according to figures provided by the Canada-Newfoundland and Labrador Offshore Petroleum Board. In turn, international merchandise exports, which consist largely of crude oil and refinery products, fell by 43.5% — the largest decline among all the provinces, according to a National Bank of Canada report.

With all these sectors being forced to cut back production — keeping in mind that the already suffering pulp-and-paper sector was forced to face more cutbacks in 2009, with both temporary and permanent closures of several mills across the province — it’s no surprise that unemployment figures rose across the province. A Bank of Montrealreport predicts that unemployment climbed by more than 3% in 2009 to 15.5%, breaking provincial records.

But there are many positive signs to indicate that this is just a temporary setback for the province, as Locke and other economists believe. It’s worth noting that Newfoundland and Labrador turned a corner in 2008, becoming a so-called “have” province, in that it no longer needs equalization payments from the federal coffers. Although real GDP is estimated to have dropped by 2.9% in 2009, it’s expected to bounce back to a growth of 3.1% in 2010, according to a report issued by Toronto-Dominion Bank’s economics department in October 2009.

Although nominal GDP in Canada has grown by 50% in the past decade, it’s grown by 170% in Newfoundland and Labrador — the fastest growth in Canadian history, according to Locke: “It’s broken all the records.”

Adds Marie-Christine Bernard, associate director of provincial forecast services with the Conference Board of Canada in Ottawa: “If it wasn’t for the decline in oil production, [the province] would actually be doing quite well.”

Consumer confidence has been high on the Rock, and retail spending reflects this. According to Statistics Canada figures used in TD’s provincial economic forecast, Newfoundland and Labrador was the only province to see positive growth — albeit small (0.7%) — in 2009; Canada, as a whole, saw a 3.8% drop in retail trade.

The housing market in New-foundland and Labrador has also benefited from this increased confidence, with only a small decline in housing starts. According to Conference Board of Canada figures, housing starts fell by slightly less than 4% in the province, vs a 30% plunge across Canada on average; TD’s report estimates that housing starts for the province fell by 12.5%, against a 33% average drop across the country.

The province’s resale housing market is also thriving. Armed with the knowledge that there will be more jobs than the current labour force can handle, returning natives and investors are buying up houses, particularly in St. John’s, Locke says. The Canadian Real Estate Association estimates that average home prices in Newfoundland and Labrador rose by almost 15% in 2009 from a year earlier, which in turn had already seen a phenomenal bump of almost 20% from 2007. To put this into perspective, Canada, as a whole, experienced only a 3.8% bump in 2009.

The general consensus is that Newfoundland and Labrador is well poised to turn the corner in 2010, and to thrive in 2011.

Most significant, there are some major projects underway that will create job opportunities and help buoy the province’s economy. Hibernia and White Rose are developing satellite fields for oil production that will offset the maturation of existing fields, to the tune of up to $500 million each. Mining activity will also pick up. Vale Inco’s Voisey’s Bay nickel mine, for instance, began construction on its processing plant in 2009, which is expected to ramp up employment in Long Harbour. According to Vale Inco, the construction phase of the development translates into 5,750 person-years of employment.

@page_break@These and other projects — along with provincial initiatives (the provincial government increased infrastructure spending to approximately $800 million in its 2009 budget and in excess of $4 billion over the next several years) — go a long way toward explaining the province’s increase in population. Workers are returning to Newfoundland and Labrador to tap into some of these opportunities. In fact, the province has posted the highest sustained increase in in-migration in its history, says Locke, with increases to its workforce for five quarters running.

The Conference Board of Canada, meanwhile, estimates that the province has grown by 2,600 people in 2009. This is particularly significant, considering that, traditionally, 3,000 to 4,000 Newfoundlanders leave their home province each year. This inflow is an entirely new trend for the province, Bernard says.

It’s also a necessary trend. The top challenge the province is facing is a shortage of labour. As is the case with all the provinces, Newfoundland and Labrador boasts an aging population. It’s going to need a hefty input of skilled workers in order to avoid derailing its plans and putting a crimp on growth. Locke suggests the province may well end up competing with Alberta for workers.

In addition, St John’s has a reputation as being one of the top cities in Canada for migrants. In January, the Conference Board of Canada gave the capital an A — one of only six cities to earn the top grade — for its ability to attract migrant workers, thanks to the city’s strong productivity levels and emphasis on health and the environment.

Says Locke: “There’s a newfound confidence here, and that will bode well for the future.”