Prince Edward Island experienced economic growth in the dark days of 2009 and, as a result, it didn’t take as much of a hit as other provinces did during the recent recession. But, on the flip side, says David Onyett-Jeffries, economist with Royal Bank of Canada in Toronto, P.E.I. has not seen as much of a rebound as the rest of the country.

Final real gross domestic product growth for P.E.I. is estimated to be 2.1% in 2010. And Onyett-Jeffries expects that growth rate to continue, hitting 2.2% in both 2011 and 2012.

The construction industry in P.E.I. — Canada’s smallest province — was a key source of strength for the province’s economy throughout the recession, but that industry has shown signs of easing. Industrial and commercial building construction was down by 38% during the nine months ended Sept. 30, 2010, according to a recent RBC report: “We expect the weakness to continue, thanks to the cancellation of several renewable energy projects.”

Overall, capital investment in the province is expected to be weaker in 2011 as the stimulus from the federal government ends; as well, the provincial government has announced a capital budget that shows a reduction in its planned capital spending in 2011-12.

However, there are several private-sector projects in Charlottetown that will bring a small amount of strength to the sector, says David Chaundy, senior economist with the Atlantic Provinces Economic Councilin Halifax. Already, P.E.I. has announced it will go ahead with a new, $17-million convention centre in downtown Charlottetown and a $22-million hotel being built by APM Construction Services Inc.

P.E.I.’s housing market also held up quite well during the recession, but it has begun to see some declines over the past year. Housing starts have dropped in the past seven months, says Onyett-Jeffries, with only modest levels of new residential construction activity to occur over the next two years being forecast.

The high expectations for P.E.I.’s wind-power project, which was announced just before the recession, may have been overzealous; many of the projects are being greatly scaled back or even stalled. The $1-billion wind-power development project was originally expected to boost the province’s wind-power generating capacity to 500 megawatts by 2013 from 150 megawatts in 2009. Currently, P.E.I.’s output is sitting at 165 megawatts, says Eric Thomson, economist with the Conference Board of Canada in Ottawa, far from the production it was anticipating.

“There are some issues in terms of raising the energy rates,” says Onyett-Jeffries, “and the province won’t agree to raise them, so we have seen a fall-off there. Right now, with those projections, they are not going to be able to make the original targets.”

On the employment side, P.E.I. continues to outperform the rest of the country in employment growth, says Chaundy, with an average rate of 2.8% in 2010.

“This was well above the national rate of job growth of 1.6%,” adds Chaundy, “so it was definitely one of the strengths supporting P.E.I.”

Looking ahead, there is some concern that the employment level will see a slight decline in 2011, Chaundy says, but it still should remain above national levels.

However, the unemployment rate on the Island averaged 11.4% in 2010, still higher than the national average of 8%.

Meanwhile, P.E.I.’s 2010-11 budget had predicted a $55-million deficit for the current fiscal year, although the province plans to balance its budget within four years. “[P.E.I. hasn’t] introduced any new tax strategies or spending cuts,” says Onyett-Jeffries. “Our take on it is that the province is making the assumption that the improvement in the economic cycle is going to take care of its issues.”

P.E.I.’s exports continue to suffer, a reflection of the weak demand for potatoes and the reduced contract volumes for processors throughout the U.S. The agrifood sector accounts for more than half of P.E.I.’s merchandise exports. While many provinces saw increases of 8%-9% in their exports, says Chaundy, P.E.I.’s were the weakest, dropping by 10% overall.

With agrifood being one of P.E.I.’s key sources of export revenue, the province has made a push to diversify its reliance on the sector by introducing aggressive corporate tax strategies to attract aerospace and biotechnology firms.

“As a result, the province has seen a number of large-scale projects from some fairly large aerospace and biotech companies,” says Onyett-Jeffries, adding that this activity had helped to cushion the impact of the downturn.

The province’s largest bioscience company, BioVectra Inc., will begin expanding its operations this year. The company plans to spend $20 million over the next two years. IE