September 26, 2013
Natural gas, U.S. exports and shipbuilding should fuel Nova Scotia in 2014
There are signs that Nova Scotia’s economic health has improved over the past year. This statement is based primarily on the fact the unemployment rate in the province has declined from 9.6% to 8.7% and full time employment is up by 3,200.
Across major industrial categories, total employment is up by 4,400 in the construction industry followed by professional services (+2,400), business services (+1,900) and utilities (+800). These gains more than offset declines in education services (-3,200), public administration (-2,500) and accommodation services (-1,900).
Year-to-date, the major driver of Nova Scotia’s improved economy has been a steady gradual increase in economic activity in the U.S. which is primarily responsible for the 9.3% gain in the province’s exports over the past year.
By far the largest contributor (61.1%) to this increase in foreign sales is strong growth of external demand for the province’s natural resources. Compared to the first seven months of last year, total exports are up by 9.3% primarily due to a very solid 51.1% jump in exports of paper and paperboard, plus increased foreign sales of seafood (+10.1%), rubber products (+75%) and wood products (+29.2%).
Turning to the major elements of domestic demand in Nova Scotia, in light of the fact that, year-to-date, retail sales are up by a very slight 0.7%, it appears that consumer spending has not made a significant contribution to growth thus far in 2013.
Although the most recent Statistics Canada Survey of Public and Private Investment Intentions anticipated that following a decline of 6.9% in 2012, investment in non-residential construction and machinery and equipment in Nova Scotia would increase by 3.4%, year-to-date non-residential construction is down by 11% year-over-year and the value of non-residential building permits issued in the first seven months of the year is off by 28.3% year-over-year.
Finally in light of the provincial government’s commitment to hold the line on expenditure growth in fiscal 2013/14, government spending is unlikely to make a material contribution to growth over the near term.
Although the near term outlook for consumer spending and government spending is overcast, the outlook for investment and exports is brighter.
First, after a series of setbacks, production of natural gas from Encana’s Deep Panuke natural gas project is imminent. Also, the sustained gradual pickup in U.S. demand for paper products and lumber should contribute to a steady increase in U.S. exports.
Finally, investment should get a boost from increased spending at the Irving shipyard in advance of the $25 billion thirty-year project to construct 15 warships and 6 patrol boats. Given the fact that the province got off to a slow start this year, growth for the year as a whole will probably be in the range of 1.0% to 1.5%. However, the impact of a further strengthening in total exports plus a moderate strengthening of domestic demand should cause the economy to expand by 2.0% to 2.5% in 2014.
Data Source (actuals): Statistics Canada; Forecasts and Chart: CanaData – Reed Construction Data.