• Economic growth in Newfoundland to reach 5 per cent this year, the second-fastest pace among the provinces
• Rising crude oil and iron ore production contributing to economic growth in 2000
• Employment growth slowing, but provincial unemployment rate to fall steadily throughout the forecast period
• Real personal disposable income growth to pick up steam in 2001-02

TORONTO - Canada's provinces will enjoy stellar growth rates of 3 to 6 per cent in 2000, with "new economy" industries leading the expansion from coast to coast, say TD economists in their latest issue of the TD Quarterly Industrial and Provincial Forecast. "Newfoundland's economic performance will be among the most impressive of all the provinces, with average annual growth of about 5 per cent per year expected throughout the 2000-02 period," says Derek Burleton, Senior Economist, TD Bank Financial Group. "The chief source of strength for the Newfoundland economy continues to come from oil production and related exploration and drilling activity, mainly in the Grand Banks area."

Newfoundland becoming a key player in Canada's oilpatch
Last year marked the first year that crude oil surpassed iron ore as Newfoundland's most important mineral, generating one-half of the province's mineral production receipts. "Industry estimates suggest that if the Terra Nova and South White Rose oil projects proceed as planned, Newfoundland could account for about one-third of Canadian conventional light crude oil production in 2004," says Burleton. Production at the Hibernia oilfield is expected to climb to around 50 millions barrels this year, and oil could also be flowing from the onshore Port au Port Pensinsula development as early as next year. With the Hebron-Ben Nevis project still in the pipeline and the provincial government now exploring opportunities in the area of natural gas production and development, crude oil and natural gas are likely to be the mainstay of the Newfoundland economy throughout the forecast period.

Employment and personal income growth to rebound in 2001
Growth in Newfoundland's job market has taken a breather so far in 2000, partly due to weakness in the goods-producing sector, including fish processing. However, employment growth is likely to bounce back over the following two years, and the province's unemployment rate is expected to continue falling, with a thirteen-year low of 15.6 per cent in sight for 2002. The lacklustre performance of the provincial job market has translated into weaker growth in real personal disposable income in Newfoundland this year. However, this situation is set to reverse in 2001. "The rebound in Newfoundland's job market over the next two years, combined with the provincial government's cuts in personal income taxes, will help to push growth in real after-tax income in 2001-02 to an impressive 3 per cent per year - the fastest pace in the Atlantic region," notes Burleton.

"New economy" industries leading the way in Canada
An emerging theme in the Canadian economy this year is the growing shift in momentum from traditional sectors toward the "new economy" industries (NEIs). "We define the NEIs as goods and services industries that operate in the domain of telecommunications, fibre optics, and computers and software," notes Burleton. "Although their combined size is still small - at about 7 per cent of GDP and 5 per cent of total employment - these industries have accounted for nearly 25 per cent of economic growth and 15 per cent of overall job creation on average in the provincial economies since 1997." An expected slowdown in corporate profit growth will take some of the steam out of the NEIs over the next two years, but demand for information technology is likely to remain relatively strong, which should ensure that the NEIs maintain their recent share of overall output growth and job creation throughout the forecast period.

Sustained increase in energy prices would produce clear winners and losers
Another focal point of this quarter's forecast is the likely impact on economic growth of the surge in energy prices seen over the last twelve months. Assuming that crude oil prices move back towards the US$25-$28 per barrel range next year, the negative impact on real GDP growth in Canada's provinces should be minimal. "However, if crude oil and natural gas prices remain at or above today's high levels, provinces that are net importers of energy products - including most of the provinces of central and eastern Canada - could see real GDP growth trimmed by as much as half a percentage point next year," cautions Burleton.

In contrast, the high level of energy prices is providing a boost to the economic and fiscal positions of Alberta and, to a lesser extent, Saskatchewan. In Alberta, brightening prospects for growth, together with a surge in crude oil and natural gas royalty collections, prompted the government to lift its estimate of the fiscal 2000-01 surplus to a mammoth $5 billion and announce cuts to corporate income-tax rates, which match those promised by the Ontario government in its May 2000 budget. "This will put increasing pressure on other provinces - which already have some work to do to narrow the gap between their personal income-tax rates and those of Ontario and Alberta - to move corporate tax breaks further up the agenda for the 2001 budget round," says Burleton.

Real GDP: Real gross domestic product in 1992 dollars
Forecast by TD Economics as at October 2000
Source: Statistics Canada, TD Economics

For more information, please contact:

Derek Burleton
Senior Economist, Canadian Industries and Provinces
(416) 982-2514

Don Drummond
Senior Vice President and Chief Economist
(416) 982-2556