A release on Friday from Statistics Canada showed that the provincial economy shrank by almost 5% in 2012. They even supplied a lovely chart to illustrate the GDP changes in each province as well as the national average.
This wasn’t just modest growth or even a modest drop. We are talking one of only two provinces with a drop in GDP and the biggest change – positive or negative – of any province or territory in Canada.
Alberta is even more dependent on commodities than Newfoundland and Labrador and it still managed to see gross domestic product grow by almost four percent.
Not so in the former Republic of Dannystan.
By almost five percent.
One thing that tells you that the government’s line about the strong local economy is a crock. Remember? First Tom Marshall and then Jerome Kennedy tried to tell us that the provincial government’s financial problems were isolated to problems overseas, including a loss of a federal transfer they knew they were going to lose all along.
Here, everything is great.
SRBP readers are well-familiar with the idea that the economy in Newfoundland and Labrador depends very heavily on exports of resources to other places. So basically, if things are going to crap over there, then we are going to have a bad day or two as well over here.
And since government revenue is derived largely from those resources like oil and minerals, then it stands to reason that a downturn internationally will have a direct impact on provincial royalties.
Now if the people in government had their memories erased every year and couldn’t do any research, you could forgive them for spending as much or more than they took in. But since the people making budget decisions know the province’s history and the risks of being so dependent on highly unreliable sources of income, overspending is about the most irresponsible thing you could be.
To then turn around and call people “spoiled” because of all the overspending? Well, that would be about as reprehensible a comment for any politician as making light in a Twitter comment of the history of sectarian violence in this province complete with caricatures of local accents in the way you spelled the words in the tweet. Reprehensible and monumentally stupid all wrapped up in a sour coating of arrogance and obvious ignorance.
That – Don Mills – is why the Tories are dying politically, not the economic downturn.
Just to give a sense of the way economic growth in the province has been going the past few years, here are some charts based on data from Statistics Canada and the Newfoundland and Labrador Statistics Agency, which also uses Statistics Canada figures.
The Statistics Canada release talked about real GDP. That means GDP calculated using a base year, in that case of 2007. They convert all prices to the equivalent of 2007 Canadian dollars.
The table above is based on data from NL Statistics and uses 2002 dollars for the constant. The red line shows the GDP for all industries and then breaks them down using the North American Industrial Classification System. For the blue line we just subtracted the line for mineral and oil and gas extraction. That many not capture all the oil and minerals industry but it gives us something to work with.
You can see pretty quickly that since the late 1990s, the non-oil economy has been puttering along. By contrast, the whole provincial economy, with oil in, has had some pretty big swings up and down.
Here’s the same sort of chart with three differences. First difference: this one uses current dollars, that is, whatever the actual reported amount was in a given year regardless of things like inflation.
Second difference: the colours are reversed. In this chart, the red line is the non-oil figure while the blue is the all-in number.
Third difference, the figures only go to 2008.
For all that, you can see something rather interesting. The non-oil economy experienced some fairly consistent growth from about 1998 to 2006. Then there was some sort of weird jump followed by a couple of periods of shrinkage. Curiously enough, the shrinking started before anyone really noticed anything about a recession.
And if you recall, even in 2008, the local Conservatives were trying to pretend that we lived in an economic bubble of some sort.
In hindsight, that sort of nonsense looks even more weird than it did at the time. Back then it looked like a rather silly ploy to try and keep people spending money so that tax revenues wouldn’t drop off. In most respects,it worked in the short run since locals faithfully repeated government bull even though it was obviously bull.
Hindsight has also shown us the extent to which the recession took a gigantic chunk out of the provincial economy. We are still struggling to get out of it, in some respects.
That will be a good subject for another post, but for now just chew on the changes to gross domestic product in the province. The reality of that 4.8% drop last year wasn’t lost on the provincial government when they decided to plough ahead with their agenda of heavy provincial government spending (Muskrat Falls) as a substitute for sustainable private sector economic growth.