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HALIFAX, NOVA SCOTIA--(Marketwire - Oct. 12, 2011) - Economic growth in Nova Scotia is likely downshifting to 1.7 per cent this year after a rate of 2.1 per cent growth in 2010, according to the Provincial Monitor report released today by BMO Capital Markets Economics.

"Fiscal restraint and a slowdown in capital spending weigh on activity in the near term," said Robert Kavcic, Economist, BMO Capital Markets. "That said, while a sluggish job market is not helping, Nova Scotia's jobless rate is now the lowest in Atlantic Canada at 8.4 per cent."

Construction activity at Encana's $800 million Deep Panuke natural gas project continues, and first gas is expected to boost exports in 2012. Public-sector investment, however, is slowing as stimulus spending retreats. "Overall capital spending in the province is poised to fall modestly this year after growth of 5 per cent per year in the prior two years," stated Mr. Kavcic.

"Continuing construction activity at Encana's Deep Panuke natural gas project remains great news for Nova Scotia," said Laura Charlton, Vice-President, Nova Scotia District, BMO Bank of Montreal. "With the first gas expected to flow next year, we look forward to exports rising and contributing to growth."

The Province is in deficit-reduction mode, and efforts are now ongoing to return the budget shortfall (0.8 per cent of GDP in fiscal 2011-2012) to balance on a sustained basis. Consumers have been dealt a 2 percentage-point increase in the HST (July 2010) along with higher fuel and utility costs, and spending growth has slowed as a result—retail sales growth in the province eased to 1.6 per cent year-over-year in the first half of the year, down from nearly 7 per cent year-over-year in the first half of last year, before the tax kicked in.

Nova Scotia's Public Accounts reported a surplus of $569 million in fiscal 2010-2011 (1.6 per cent of GDP), $122 million higher than the $447 million originally forecast. The Budget had projected a return to a $390 million deficit in fiscal 2011-2012, but the Q1 fiscal update now projects a somewhat smaller shortfall of $319 million (0.8 per cent of GDP), mostly on lower-than-projected revenues and expenses (the latter more so) within the General Revenue Fund. The Government re-affirmed its commitment to balance the budget in fiscal 2013-2014. From this spring's Budget, the province projected a shortfall of $216 million next fiscal year and a $15 million surplus in fiscal 2013-2014 (this time not due to technical/temporary factors).

The full Provincial Monitor report can be downloaded at bmocm.com/economics.