31 March 2007

NL only province to see capital investment drop in 07/08

RBC Economics is the latest to forecast that the Newfoundland and Labrador economy will trail the country in growth in 2008, at 1.5%.

The decline will be led by what RBC calls a "retreat by capital investment".

In fact, according to RBC, Newfoundland and Labrador will be the only province in Canada to experience a decline in capital investment.

Nova Scotia is the province with the smallest forecast growth, at around 2.5%.

Newfoundland and Labrador's capital investment is expected to shrink by 7.5%.
With all three oilfields now operational and the labour disputes at Voisey’s Bay in the past, we expect the province to post above-average growth of 4% this year. Beyond 2007, growth will be much weaker as dwindling oil production and a decline in capital spending — led by a retreat in private investment — drag growth to a 1.5% pace in 2008. The weakness in construction markets is expected to span both non-residential and housing markets. Newfoundland is the only province reporting a decline in overall 2007 capital spending intentions. Broadbased weakness in housing markets has also emerged with several indicators down this year compared to year ago levels.

Unlike last year, this year’s federal budget will have little effect on Newfoundland other than a new transfer funding formula that requires provinces to include 50% of resource revenues in the equalization formula. But, since the Offshore Accord shields offshore resource wealth in Nova Scotia and Newfoundland from clawbacks, they now both have the option of sticking with the existing system until the accord expires or opting into the new formula.