December 16, 2013

A new commodities giant struggles to emerge in an unspoiled land (Part 2)

Continued from Economy at a Glance Part 1.

According to the PPI survey, the total dollar spending on construction and machinery and equipment in Newfoundland and Labrador in 2013 will be $11.0 billion. Excluding residential, it will be $9.2 billion. That’s much higher than the comparable figures in either Nova Scotia ($4.6 billion) or New Brunswick ($4.1 billion).

Reed Construction Data (RCD) compiles lists of upcoming construction projects. According to RCD’s research, there is currently $23 billion worth of contemplated and planned non-residential work in the province.

The vast majority of the investment spending will be on engineering/civil projects. But there will also be significant industrial and commercial spinoffs. Through taxes and royalties, pay cheques and the purchases of services, dollar spending will spread out in widening circles.

There’s $600 million allocated for institutional investment, with hospital construction in the forefront. The largest individual project will be located in Corner Brook. In commercial work, a new 400,000 square foot shopping centre in Bonavista stands out.

In 2010, Newfoundland and Labrador led all provinces with a “real” (i.e., inflation-adjusted) gross domestic product (GDP) growth rate of 6.4% year-over-year. In 2011, the pace eased to +2.8%.

Last year, with the pull-back in world trade and an accompanying weakness in commodity prices, the province’s GDP fell by 4.8%.

Heading into 2014, the future is looking brighter again. GDP change in the coming year will be heavily influenced by the global price of oil. Two factors suggest an ongoing upward adjustment.

The wavering path being negotiated by Middle Eastern regimes as a result of the Arab Spring is leading to greater uncertainty. The worst manifestation is in Syria where a desperate authority is locked in conflict with a diverse group of rebel factions, some of which have links to Al-Qaeda.

Use of chemical weaponry by the forces of Bashar Assad has inflamed the rhetoric surrounding military action, led by the U.S. The inevitable result has been growing concern about oil supplies from other countries in the region.

Add to the mix an improving economic outlook in the Euro-zone, which will also stimulate China’s growth, and the price of oil is back on an upswing.

The foregoing has focused mainly on investment by the private sector. Where is the public sector concentrating its efforts? The answer is expanding electric power capacity.

Two new stations on the Churchill River, with Muskrat Falls as the first phase and Gull Island as the second, will supply electricity by undersea cable to islanders and residents of Nova Scotia.

Further transmission lines may see the power surge into New Brunswick and New England states as well. But it may be difficult to maintain a competitive cost edge.

The U.S. is achieving immense increases in natural gas reserves through hydraulic fracturing technology. This is bringing down the cost of generating electricity in natural gas-fired plants.

This article began with an assertion that there are striking similarities between land-locked Saskatchewan and surrounded-by-the-sea Newfoundland. Among Canada’s major cities, Regina and Saskatoon often now rank one-two for lowest unemployment rates.

St. John’s has upped its game as well. Lately, the city’s jobless figure has been consistently lower than in the Atlantic Region’s other major urban centres.

This past summer, the city’s unemployment rate (6.0%) also rested well below the national average (7.2%), a notable achievement for a work force that has historically been challenged.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

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