• Real GDP growth in Nova Scotia expected to reach 3 per cent this year
• Natural gas production at Sable Island a key contributor to growth
• Manufacturing and residential construction activity also playing a leading role
• Deficit reduction holding back provincial tax cuts, but real personal income growth should still remain healthy

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. "Nova Scotia's economy is reaping the benefits of the first year of natural gas production at Sable Island this year, as well as rising manufacturing and residential construction activity," says Derek Burleton, Senior Economist, TD Bank Financial Group. "The economy is expected to post real GDP growth of 3 per cent for the year as whole. However, although the outlook for the province's natural gas industry remains extremely favourable, some moderation in overall economic growth in the province - to about 2.5 per cent per year - appears to be in the cards for the 2001-02 period."

Rising natural gas production providing a sizeable boost to economic growth
The completion of development of the Sable Island natural gas project and pipeline in 1999 is putting a damper on non-residential construction activity in Nova Scotia this year, and will continue to have restraining effects on real GDP growth in the province in 2001. However, rising natural gas output from Sable Island is helping to take up some of the slack. "Production from Sable Island, which began to flow at the end of 1999, is being ramped up steadily this year, and should hit its estimated peak level sometime in 2001-02," says Burleton. With the pace of offshore exploration activity on the Scotia Shelf expected to remain brisk over the next several years, the natural gas industry should continue to prosper over the medium term.

Manufacturing and homebuilding activity to slacken next year
Nova Scotia's manufacturing and residential-construction sectors, which are turning in a stellar performance this year, are expected to post more moderate growth in the 2001-02 period. "Producers of wood, pulp and food products will feel the pinch from an anticipated softening in growth in U.S. demand by 2001. This will have a knock-on effect in other sectors of the economy, such as homebuilding, next year," notes Burleton.

Consumers to benefit from relatively healthy income gains
Personal income-tax relief in Nova Scotia is likely to lag behind that in other provinces as the provincial government concentrates on tackling its budget deficit and delays income tax relief until fiscal 2003-04. "Nevertheless, growth in real personal disposable income per person is expected to climb at a fairly healthy rate of 1.5 per cent per year in the 2001-02 period, supported by increasing employment and income-tax relief at the federal level. This pace of income growth should be sufficient to underpin moderate advances in consumer spending over the forecast period," says 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