Will New Brunswick’s rebound pick up pace?

By almost all counts, New Brunswick has weathered the recession quite well — at least, in comparison with the rest of the country.

In 2009, the province was clobbered with job losses in manufacturing, trade, transportation and warehousing; but, thanks to stability in the services sector and strong construction activity due to government initiatives, New Brunswick’s real gross domestic product slid by 2.2%, in line with the national 2.3% drop, while employment remained virtually unchanged, falling by only 0.2%, compared with Canada’s 1.7% average decline. Furthermore, retail trade in New Brunswick dropped by a modest 1.5% through the year, less than half the loss (3.8%) experienced in Canada overall.

But these figures don’t tell the whole story, says Frank Strain, an economics professor at Mount Allison University in Sackville: “We sort of have a double whammy because, although we seem to have not fallen as far as the rest of Canada, we seem to be slower getting out.”

In fact, the last quarter of 2009 has revealed that while some of Canada’s key economic indicators — notably, housing starts and retail sales — had stabilized, he points out, the same indicators in New Brunswick were starting to lose their lustre.

Indeed, all of the projections from the major Canadian banks indicate that the province won’t be outpacing the average Canadian figures moving forward. For instance, Bank of Montreal’s economics department forecasts real GDP growth of 2% in 2010 and 2.8% in 2011 for New Brunswick, lagging Canada’s overall 2.6% and 3.6% spurts, respectively. Meanwhile, housing starts are expected to drop 1.3% in 2010 in the province, vs a 6.1% rise for Canada, according to Toronto-Dominion Bank forecasts.

Many of the major capital projects that had boosted overall growth in New Brunswick in 2009 — there were 86 such projects, totalling $24.1 billion, according to the Atlantic Provinces Economic Council — are either completed or close to completion. Most of the spending on the Brunswick Pipeline, for instance, occurred in 2008. This explains why future growth might be at a slower pace than the rest of Canada, Strain says.

In a curious way, New Brunswick was forced to begin absorbing economic turbulence long before the rest of Canada because it has been so reliant on forestry, which has had its own struggles with lower demand for several years. According to National Bank of Canada data, the value of forest-products exports is now half of what it was in 2004, and almost half of the province’s sawmills have closed their doors (although some only temporarily.)

Although economists are optimistic that the lumber side of the equation may thrive as the housing sector improves (although growth may be muted by the strong Canadian dollar), it seems no one is confident that paper production will ever rebound.

But there are some substantial rays of light at the end of the tunnel for the province that, while they might not make for a spectacular 2010, are likely to translate into higher sustainable growth rates down the road.

Most significant is the provincial government’s decision to reduce corporate and individual tax rates starting in 2009, says Richard LeBlanc, president and CEO of the Fredericton-based New Brunswick Business Council, a lobby group of 24 CEOs of New Brunswick-based businesses. In fact, New Brunswick has committed to offering the lowest corporate tax rates in the country in an effort to attract business.

Second, the province has struck a deal with Hydro-Québec wherein the hydroelectric giant will act as a wholesaler, selling its electricity to New Brunswick Power Corp. The deal will provide residential consumers with a five-year rate freeze on their energy consumption and cut industrial rates to Quebec’s levels — for savings of $5 billion, according to reports.

Both of these factors should help revitalize New Brunswick’s hard-hit manufacturing sector, LeBlanc says, which has lost 8,300 jobs over the past decade.

What economists are hoping for down the road is a more industry-diverse New Brunswick. Says Strain: “I view it like a portfolio, because the risks can be reduced if you have diversity.”

Although natural resources will always be important for the province, there is room for growth in sectors such as information technology and green energy — although the Hydro-Québec deal may dampen enthusiasm for wind-power farms and tidal-power turbines.

@page_break@Further improving business diversity is the province’s effort to ensure that growth occurs outside urban centres such as Moncton.

To that end, the provincial government launched a strategy in January to stimulate the economy in its northern area. The plan outlines a schedule of actions that will attract industry and tourism to the area and, among other things, create 2,700 permanent jobs over the next three years. LeBlanc’s group has also formed a mirror council for the north, called the Northern Leadership Council, made up of 17 executives of significant employers in northern New Brunswick.

Another major goal of the Action Plan for Self-Sufficiency in New Brunswick is to increase the pool of skilled workers in the province. As with other Canadian provinces, a major challenge for New Brunswick is its aging population; it has to attract and retain workers from outside the province. Strain says the government doesn’t yet have well-developed policies to attract immigrants; furthermore, New Brunswick doesn’t boast a city centre that is on immigrants’ radar, the way Toronto or Vancouver are.

However, he adds, the move toward making New Brunswick more tax-friendly may go a long way toward changing the current demographic makeup of the province.