The Chronicle Herald (Provincial)
Think-tank bullish on Atlantic Bubble
The Conference Board of Canada is really impressed by the Atlantic Bubble, which helped the provincial economies in the region ride out the pandemic by allowing residents to move within the four provinces without need to quarantine.
Sadly, the bubble burst last fall with the resurgence of COVID-19 cases.
In its economic outlook for the next two years, released this week, the Ottawa-based not-for-profit think-tank indicated that the bubble was a key reason the Atlantic provinces were able to mitigate some of the negative economic aspects of the pandemic.
NOVA SCOTIA
Increased government spending and a hot housing sector were also critical to Nova Scotia’s recovery from its worst recession in history, stated the authors of the outlook, senior economist Daniel Fields and chief economist Pedro Antunes.
“We expect Nova Scotia’s real GDP to decline by 6.1 per cent in 2020, less damaging than the 6.6 per cent decline anticipated for the country as a whole. In 2021, strong residential investment, a recovery in global demand, and the start of the $10-billion Goldboro LNG project will be key factors in supporting a 3.2 per cent rebound in GDP,” the outlook says.
The board expects the Nova Scotia economy to “fully recover” to PRE-COVID levels by the middle of 2022.
Low housing inventories, coupled with pent-up demand, drove average home sales up by 22.6 per cent in September, compared to the same period in 2019, it said.
“As such, it is not surprising that the number of housing starts in the province rose to 6,690 units in September, up 51.3 per cent from the same period last year. We expect Nova Scotia’s residential investment to accelerate, starting in the third quarter of this year, and rebound by 14 per cent in 2021. “
Recovery in the service industries faces more risks than the goods sector, according to the outlook. On top of Covid-related disruptions to operations at several factories, the closure of the Northern Pulp mill in early 2020 aggravated the shock to the province’s forestry sector and to manufacturing output.
Construction output, conversely, benefited from rising housing starts and government capital investment plans.
Overall, the Conference Board expects real household spending in Nova Scotia to shrink by six per cent in 2020 and then increase by 1.8 per cent in 2021. The province shed 75,400 jobs between February and April but managed to recoup 97.3 per cent of February’s employment level by October.
Despite the fast rebound of employment, the think-tank expects job growth to slow.
“As the pandemic lingers and restrictions remain in place, those workers still affected by the virus will face a prolonged period of unemployment until the pandemic ends, hopefully in the summer of 2021.”
Deficit spending will reverse four straight years of Nova Scotia government surpluses. The deficit is expected to be $852.9 million in 2020–21. Pandemic-related spending on health and wellness led Nova Scotia’s debt to balloon during the 2020-21 fiscal year, rising to $16.9 billion.
NEWFOUNDLAND AND LABRADOR
Newfoundland and Labrador’s economy is expected to contract by 5.1 per cent in fiscal 2020-21, constrained by the combined effect of COVID-19 and a steep drop in world oil prices.
The Conference Board pointed out that real gross domestic product there is estimated to have fallen by 10.2 per cent in the first half of 2020.
“Still, despite all the negative news, the overall decline in real GDP in Newfoundland and Labrador is forecast to be smaller than the national average of 6.6 per cent for 2020,” it wrote in the outlook.
“The ramp-up in production at the Hebron site and continued production at most of the other offshore sites will help keep output in the mining sector steady this year, despite the loss of Terra Nova.”
In all, the economists are calling for a five per cent increase in real GDP for next year and a 3.8 per cent gain in 2022. Employment growth in the province was already weak heading into 2020.
“Newfoundland and Labrador’s employment rose by a mere 1.1 per cent over the past two years, for a total gain of just 2,600 jobs. Over the first two quarters of 2020, employment fell by more than 10 times that amount — down by almost 28,000,” according to the outlook.
With its border closed to non-essential travel, Newfoundland and Labrador’s tourism industry came to “a grinding halt.” Significant job losses weakened consumer confidence, as well, even though disposable income growth was boosted by government relief programs. The Conference Board is calling for growth of 7.7 per cent for disposable income this year.
The offshore oil sector in Newfoundland and Labrador started 2020 on a high note. Unfortunately, at the same time, COVID-19 was hitting and oil prices fell fast. As a result, construction was halted almost immediately at the West White Rose project and plans for the Bay du Nord project were put on hold.
As the year progressed, things did not get any better. By the end of the summer, it was announced that West White Rose would be delayed until 2022. Drilling plans were cut, including an 18-month halt at the Hibernia site.
The Conference Board is forecasting a 13.7 per cent decline in real non-residential investment for 2020-21. A 4.2 per cent increase is expected for 2021-22 as some of the projects restart, but investment will slip again in 2022-23 as work is completed on those projects, the think-tank predicted.
PRINCE EDWARD ISLAND
The Island is suffering its largest recession on record. The key drivers of growth, immigration and tourism, have been severely hampered by the ongoing global pandemic, states the Conference Board.
The second-quarter drop of 12 per cent remains the largest in provincial GDP on record.
“We expect that, with a vaccine available in mid-2021 and the reopening of the United States–canada border, improvements in tourism and immigration should help the province return to PRE-COVID trend levels by early 2022.
“It is likely that the travel industry will remain below normal levels until 2023. Immigration, the other solid source of growth for the island province, has understandably taken a hit in 2020 due to travel restrictions,” it said.
“However, the recently announced immigration targets from the Canadian government should lead to significant increases over the next three years.”
The pandemic has acted like a wrecking ball on the labour market.
“The second-quarter (202021) drop of more than 8,000 jobs was the single worst quarter in labour market history for the province. While we did see the recapture of nearly 4,000 jobs in the third quarter, the remainder of the labour market’s recovery to PRE-COVID-19 trend levels will be much slower.”
Construction benefitted from build-up in housing caused by population growth, which has been booming since 2016.
With housing starts growing at an average annual pace of 39 per cent over 2016–19, demand for new housing has been a boon to the construction sector, according to the study.
Output in construction will grow by 15 per cent in 2020 before dropping slightly in 2021, the board projects.
NEW BRUNSWICK
New Brunswick’s economy is poised to fare among the best in Canada in fiscal 2020-21, the Conference Board predicts.
That province’s year-to-date drop in employment as of October was 3.1 per cent, which was described as a “healthy margin below the national average of 5.7 per cent.”
GDP is forecast to fall 5.2 per cent in 2020, although the second wave of COVID-19 is adding more uncertainty to business conditions and will slow momentum.
The Conference Board is expecting New Brunswick manufacturing’s contribution to GDP to fall by 7.5 per cent in 2020, mostly attributable to less activity at the Irving refinery. Wood product manufacturing and the forestry industry are benefiting from a soaring housing market.
The year-to-date decline in employment in October was 3.1 per cent, compared with the same period in 2019, and is encouraging when compared with the national average of a 5.7 per cent decline.
“Demand for goods and services around the world was disrupted by COVID-19, which has ultimately led to a weak year for New Brunswick’s manufacturing sector. Central to the sector’s woes is a sharp reduction in fuel demand from less road traffic, industrial activity, and a dismal air transportation industry. This has led the Irving refinery to put the brakes on petroleum production, pulling the forecast for manufacturing employment down by 4.8 per cent in 2020,” it stated.