TORONTO, Sept. 22, 2015 /CNW/ - With the exception of Newfoundland and Labrador, Atlantic Canada's economy is expected to see mild growth in 2015,
according to the latest Provincial Outlook issued today by RBC Economics.
After contracting by an estimated 2.6 per cent in 2014, the economy of
Newfoundland and Labrador is at the bottom of provincial rankings again
this year with real GDP projected to decline by 3 per cent in 2015. On
a more positive note, RBC expects the province will post a modest 0.8
per cent recovery in 2016.
"Newfoundland and Labrador is going through a challenging year, as
government-sector restraint, falling oil production and a drop in
construction activity are weighing down overall economic performance,"
said Craig Wright, senior vice-president and chief economist, RBC.
"Furthermore, we'll only see limited relief next year as downward
pressure persists in the construction sector with work winding down on
several major projects."
Capital spending intentions for Newfoundland and Labrador were down
modestly in 2015 following the peak of a wave of major capital projects
in the province last year. Spending is set to decline in the coming
years as two of the largest projects - Hebron and Muskrat Falls -
advance towards completion.
The province's construction industry will also face headwinds from the
housing sector as job losses depress demand for new housing. Housing
starts were down 17 per cent in the first eight months of 2015 compared
to the same period last year, and low levels of new building permits
provide no indication of an imminent turnaround.
So far in 2015, job losses have been concentrated in the public sector,
where year-to-date employment is down by 8 per cent and the outlook
remains dim, as the provincial government retrenches in the face of
projected serial deficits until 2019 or 2020. There has been some
positive offset from the private sector with manufacturing adding
workers this year as the Long Harbour nickel processing facility ramps
up refining operations at the Voisey's Bay mine.
"Looking ahead, we expect oil production to pick up modestly in 2016
before growing strongly in the following years when the Hebron offshore
facility begins operations," added Wright.
Modest growth is expected to continue in Prince Edward Island, where real GDP growth is projected to pick up to 1.7 per cent in 2015
before moderating slightly to 1.5 per cent in 2016.
"PEI's economy is on track for steady growth this year and next as the
tourism and export sectors benefit from a weaker dollar, and as
construction activity picks up," said Wright. "However, growth in these
sectors has yet to impact the labour market, and modest job gains in
late 2014 have given way to losses so far this year."
Following a 19 per cent surge in 2014, strong growth in PEI's
merchandise exports has continued so far in 2015. Export growth is
concentrated in food products, which are offsetting modest declines in
machinery and aerospace products following a period of rapid growth
since the 2008 recession. However, a new multi-million dollar
investment in the aerospace industry bodes well for future growth in
The weaker Canadian dollar, which is expected to provide a tailwind to
exporters through 2016, also supports PEI's tourism industry. Though
tourist arrivals fell below seasonal averages during the winter, strong
early indicators for the summer suggest tourism will contribute to
growth this year.
Despite initially encouraging job numbers this year, conditions have
since worsened and RBC projects PEI will see employment decline by 1
per cent in 2015. While the overall jobs picture is gloomy,
manufacturing remains a bright spot and is on track for a second year
of double-digit employment growth. Additionally, a recent rebound in
construction activity will contain job losses in that sector.
New Brunswick's economic indicators remain generally weak so far in 2015, but are
expected to improve somewhat during the remainder of the year.
Following four years of essentially no growth, RBC projects real GDP
growth to expand by 1 per cent in 2015 before accelerating slightly to
1.2 per cent in 2016.
"Growth in New Brunswick is expected to remain slow this year. The
housing and employment situations remain challenging, and, despite a
weakened Canadian dollar, exports are set to decline as the Saint John
oil refinery is partially idled for maintenance and upgrades," added
Wright. "Though private and public sector investment spending will
provide some positive offset, a difficult fiscal environment will limit
public-sector contribution to the province's growth in the coming
Declining capital spending has weighed on the province's economy in
recent years, but some of the weakness will reverse in 2015. While
non-residential investment tumbled in the first half of the year, RBC
expects a rebound as the government increases spending on road and
bridge construction, and on improvements to the energy efficiency of
public buildings. The private sector will also contribute to investment
growth as $200 million is spent maintaining and upgrading the oil
refinery in Saint John.
Production declines are expected at the Saint John refinery as the
facility undergoes a two-month maintenance and upgrade period this
fall. Refined petroleum products account for almost two-thirds of the
province's nominal merchandise exports meaning lower production from
the refinery will delay the province's export recovery. On the upside,
RBC says some offset is coming from rapid growth in exports of wood,
food, and mineral products.
RBC expects employment in New Brunswick will continue to decline this
year as the private sector sheds more jobs. One bright spot in the
dreary employment picture is the manufacturing sector, where employment
is up nearly 10 per cent to date compared to 2014, and this increase is
expected to be sustained thanks to the weaker Canadian dollar fuelling
Nova Scotia's economy will face crosscurrents this year as work on a major
shipbuilding contract in Halifax begins, and as a pickup in
construction activity runs against a significant drop in natural gas
production. Following an estimated 1.8 per cent advance in 2014, RBC
projects real GDP growth to slow this year to 0.9 per cent.
"We see further declines in natural gas output having a smaller negative
effect next year, and job creation will be supported by growing
construction and manufacturing sectors, propelling economic growth to a
six-year high of 2.1 per cent in 2016," said Wright.
In September, work began in Halifax on the first of six arctic offshore
patrol ships. Much of the $3.5 billion budget for this stage of the
project will be spent locally in industries including design and
technical services, construction, and steel fabrication. Employment at
the shipyard now exceeds 800 with room to grow to an expected peak of
1,000 jobs by 2017.
"Aside from increased shipbuilding activity, we expect the province's
manufacturing sector to see gains in other segments," said Wright.
"We've seen rising exports of tires, and investments in aerospace and
pharmaceutical manufacturing are expected to translate into rising
production going forward."
RBC says falling natural gas production is weighing on the province's
exports, which have declined by 8 per cent in nominal terms so far this
year, despite gains in key export categories such as food products,
paper, and tires.
RBC notes that public-sector investment intentions are up in the
province in 2015, propelled by the 18-month re-decking of the Macdonald
Bridge and other infrastructure investments across the province.
Private-sector investment is also expected to rise this year, as
construction activity peaks on the Maritime Link and major construction
projects take shape in Halifax.
Despite residential construction picking up after falling sharply this
winter due to severe weather, housing market indicators remain soft
signalling that the rebound in homebuilding activity this spring and
summer will likely be short lived. Home resales fell to a 17-year low
in the second quarter, and the unabsorbed inventory of newly completed
housing units remains high despite some recent improvement.
The RBC Economics Provincial Outlook assesses the provinces according to
economic growth, employment growth, unemployment rates, retail sales,
housing starts and consumer price indices. The full report and
provincial details are available online as of 8 a.m. ET today.
For further information:
Craig Wright, RBC Economics Research, 416-974-7457
Gerard Walsh, RBC Economics Research, 416-974-6525
Romina Mari, Communications, RBC Capital Markets, 416-974-3558