News Releases

ST. JOHN'S, June 25, 2009 – While Newfoundland & Labrador will likely suffer the deepest drop in GDP this year among the Canadian provinces, 2010 will see a significant rebound, according to the Provincial Outlook report released by BMO Capital Markets Economics.

“Lower offshore oil output and a more recent slowdown in domestic activity will mean a contraction of real output by 3.5 per cent this year,” said Robert Kavcic, Economist, BMO Capital Markets. “But growth will be rekindled, with a 2.4 per cent rebound in 2010.”

Output at the province's three major offshore oil projects is expected to decline about 20 per cent this year, weighing heavily on headline real GDP. However, while construction of the Hebron project has now been pushed back to 2012, work on the Hibernia South expansion could commence in 2010, now that the Province has taken a $30 million stake in the project. That, combined with a rebound in oil output, should lead to the revitalized growth.

A weakened energy sector this year has also had an impact on domestic demand, which until recently had held up relatively well. Now, however, the unemployment rate has moved above 15 per cent and retail sales have turned slightly negative year-over-year. Still, the province's housing market is a rare glimmer of strength with average prices up about 20 per cent year-over-year through May. Renewed population growth, driven largely by return migration from Alberta and Ontario, has helped the cause, allowing residential construction activity to hold steady while most provinces are experiencing material declines.

The Province's $4 billion infrastructure investment program is the most aggressive in Canada, representing about 5 per cent of GDP this fiscal year, which should help offset some of the near-term pain in the energy sector. The Province is forecasting a $750 million deficit for fiscal 2009/10, a steep shift from a fourth consecutive surplus of $2.4 billion in fiscal 2008/09. Revenue is expected to decrease nearly 17 per cent to $5.8 billion in fiscal 2009/10, reflecting a $914 million falloff in oil royalties (the combination of lower prices and lower production). Program spending is projected to grow nearly 13 per cent to $5.8 billion.

The complete report can be found at www.bmocm.com/economics.

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