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Newfoundland & Labrador Rebound from Tough Recession - BMO

ST. JOHN'S, New Brunswick, June 22, 2010 — After experiencing the worst economic contraction in Canada in 2009 - 10.2 per cent - Newfoundland & Labrador’s economy looks set to provide a strong recovery, according to the Provincial Monitor report from BMO Capital Markets Economics.

“Improvement in the mining sector and a reversal of some temporary factors will drive 4 per cent growth in 2010 and solid 2.8 per cent growth in 2011,” said Robert Kavcic, Economist, BMO Capital Markets.

Offshore oil output is in secular decline, and production fell 12.3 per cent year-over-year in the first quarter with a like-sized decline expected for all of 2010. However, mineral output, such as iron ore and nickel, is expected to bounce this year, partly because last year’s production was hampered by a strike at the Voisey’s Bay nickel mine.

The biggest economic driver in the province in the next two years will be construction activity. “Government infrastructure spending will total about $1 billion in fiscal 2010/11, helping boost total capital spending an expected 23 per cent in 2010,” stated Mr. Kavcic. “Provincial government infrastructure spending will amount to more than $5 billion over the next several years, keeping the economic fuel burning into 2011. At more than 3 per cent of GDP, the Province’s infrastructure program is among the largest in Canada relative to the size of the economy.”

Other underlying economic trends remain solid in the province. Employment reached a record level in May on strength in both private- and public-sector hiring, while retail sales and housing activity – both sales and construction – are well above year-ago levels, assisted by the fastest rate of population growth since the early-1990s.

The Province of Newfoundland and Labrador is forecasting an improved $194.3 million deficit (0.8 per cent of GDP) for fiscal 2010/11, as rebounding offshore oil revenues offset still-strong spending growth. The Province expects deficits averaging $175 million in each of the next two fiscal years, as revenues and program spending both post strong increases.

News source: BMO Financial Group

 

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