Just two years ago, China’s appetite for iron ore had created a boom town in Labrador City, N.L., as rent for one-bedroom apartments suddenly rose to $2,000 a month from $900 and homeowners even were renting out their couches for $100 a week.
Today, those boom times are just a memory; nearby Wabush Mines closed in 2014 because of faltering iron ore prices and Alderon Iron Ore Corp.’s much anticipated Kami project is delayed over financing. Houses are selling for a bargain in Wabush, N.L., and incentives are being offered to would-be renters in Labrador City.
Elsewhere, signs of economic slowdown in Newfoundland and Labrador are less apparent, although blame for a rickety real estate market and the postponement of condominium projects in St. John’s, N.L., is being laid at the feet of Saudi Arabia’s oil sheiks.
The province is suffering the downside of being economically reliant on natural resources extraction, particularly crude oil and iron ore. Thus, the provincial economy is vulnerable to swings in world oil prices, as roughly one-third of the province’s tax revenue is derived from royalties from offshore oil production.
This past December, Finance Minister Ross Wiseman said he expects the provincial deficit to balloon to $916 million in fiscal 2014-15 from the budgeted $538 million. The government has implemented a freeze on non-core spending, but no decisions have been disclosed yet on reining in expenditures or raising taxes.
Further bad news came before Christmas, when Husky Energy Inc. announced that it will defer, by at least one year, a decision on whether to proceed with the 81-million-barrel West White Rose oilfield. In addition, the first oil from the South White Rose field will be postponed by several months in 2015, with Husky citing lack of rig availability for the delay.
Another source of concern is the effect on rural communities in Newfoundland and Labrador of layoffs by Alberta oilsands operators, as thousands of Newfoundland workers make the long westward commute to centres such as Fort McMurray, Alta., regularly.
Despite these challenges, modest economic expansion for the province still is predicted for 2015; in fact, a report from Toronto-based Royal Bank of Canada suggets real gross domestic product growth of 1.1% this year, with unemployment anticipated to drop by 0.9% and retail sales expected to grow by 3.2%.
Positive developments are coming in both the near and long term for the province’s crude oil industry. Construction of the Hebron offshore oil-production platform is not likely to be affected by the industry downturn as the ownership consortium works to meet its 2017 deadline for first oil.
A further boost to the province’s prospects came in December, when a consortium led by Exxon Mobil Corp. won the rights to explore a 266,000-hectare parcel in the Flemish Pass with a record bid of $559 million. This region, which lies 500 kilometres northeast of St. John’s, is where Statoil ASA announced last year that its Bay du Nord field contains an estimated 600 million barrels of oil. Neither Statoil nor Exxon Mobil disclosed development schedules for their respective parcels.
Mineral exports also are expected to increase in 2015. Vale SA’s nickel-processing plant in Long Harbour, N.L., which began operating last November, will reach full capacity by 2016. And the economy may be further assisted this year if Vale’s plan for an underground nickel mine at Voisey’s Bay is approved.
Employment numbers will be helped by continuing construction of the 824-megawatt Muskrat Falls hydroelectric power project, which is set to begin generating power in 2017. Buyers of surplus power have not yet been identified, aside from Emera Inc., which supplies electricity to Nova Scotia.
Newfoundland and Labrador’s fishery, the lifeblood of hundreds of coastal communities, is undergoing change as the ocean’s ecology shifts. Cod stocks finally are rebounding after a 20-year fishing moratorium and may be displacing high cash-value shellfish species. Market prices for cod remain low, though.
Newfoundland and Labrador
GDP, 2013 ($bil.): 35.8
GDP % change: +10.7
2014-15 deficit ($mil.):916
Estimated net debt ($bil.): 9.5
Per capita wage growth, % change, 2013-14: +6.5
Household disposable income, per capita: $31,567
Figures from latest available reports/estimates
Sources: Conference board of Canada; Province IE chart
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