Despite the fact that demand for Newfoundland and Labrador’s merchandise exports have slowed sharply over the past year, largely due to a slowdown in its exports of resources, the province appears to be in very good economic health heading into 2013.
This observation is based on several key economic indicators. The first, and probably the most significant, is the recent solid pattern of employment growth in the province. Indeed, over the past five months through November, the province has added 5,800 jobs, the majority (5,000) of which were full time.
This pattern of relatively strong employment in the current year contrasts sharply with the comparable period in 2011 during which employment shrank by 800. Largely due to the stronger growth of employment this year, exceptionally low interest rates and volume of existing home, sales are up by 7.1% year-to-date in the province while average houses were up 9.3% year-over-year (y/y) in October. Further, over the same period, the volume of residential building permits has risen by 3.4% year-to-date due exclusively to a 6% year-to-date increase in applications to build single family dwelling units which more than offset a 0.8% decline in multiple building permits.
In addition, helping to underpin housing demand, the solid year-to-date increase in full time employment appears to have given a boost to consumer spending, reflected by a 6.3% y/y gain in retail sales in the third quarter.
Finally, despite the persisting cloud of uncertainty which has overshadowed the global economy since the beginning of the year, non-residential construction, reflected by the value of non-residential building permits issued since the beginning of the year, has rebounded following sharp contraction in 2011.
Year-to-date, the total value of non-residential permits issued is up by 17.2% y/y after a 32% y/y decline during the comparable period in 2011. By far the major contributor to the strength of non-residential building approvals this year has been a 271% year-to-date increase in industrial building approvals which has been complemented by a moderate 16.2% rise in commercial build approvals.
Further, this combination of stronger industrial and commercial building approvals more than offset a very sharp 76.3% year-to-date contraction in the value of institutional building permits issued during the first ten months of this year compared to the same period in 2011.
Looking forward, although there are lingering concerns regarding the health of the global economy, the outlook for the economy of Newfoundland and Labrador appears quite bright heading into 2013 for three key reasons.
First, both consumer spending and residential construction will probably continue to benefit from the combination of recent strong gains in full time employment against a background of relatively low interest rates.
Second, following the completion of maintenance at the Hibernia, the Terra Nova and the White Rose offshore oil fields, oil production should rebound in 2013 thereby giving a significant boost to the province’s overall output throughout the year and into 2014.
Third, the construction of the Muskrat Fall Hydroelectric Project, facilitated by a recently announced federal government loan guarantee, will inject an estimated $6.3 billion into the provincial economy over the next three to four years and create an estimated 3,100 construction jobs.
Based on these developments we expect the Newfoundland and Labrador economy to grow by 3.5% to 4% in 2013 and by 3.0% to 3.5% in 2014, following an estimated gain of 1% in 2012.
Gross Domestic Product (GDP) Growth – Newfoundland and Labrador vs Total Canada