THE REOPENING VERSUS MAJOR PROJECTS

  • Newfoundland and Labrador’s COVID-19 situation has improved since a severe second wave stalled economic momentum earlier this year.
  • Softening major project activity and crude oil production should pose drags on growth in 2021.

Newfoundland and Labrador’s fight against COVID-19 is progressing, and that bodes well for reopening and a return to economic growth this year. With the exception of a three-week surge in late January and early February, infection rates in the province have consistently been among the lowest of any jurisdiction in Canada, and that has enabled easing of strict early-year lockdown measures. Encouragingly, some of the weakness seen in indicators such as full-time employment, hours worked, manufacturing shipments, and auto sales in January and February has now reversed. Looking forward, vaccination rates are climbing, and the province aims to begin reopening in mid-June.

Strengthening iron ore prices and production are also good news. Last year, second half price gains and steady output contributed to a 2.5% gain in related nominal exports and a 9% jump in real iron mining GDP—responsible for about 6% of provincial output in 2020. We expect further ramp-up at key mines and continued strength in iron ore prices to support industry profitability this year.

Despite pricing improvements, the outlook for oil production is less sanguine. Crude oil is by far NL’s largest export, and exports made up a larger share of provincial output in 2019 than in any other Canadian jurisdiction. Terra Nova field operations—responsible for 12% of provincial production in 2019—are indefinitely suspended and yields are falling at other platforms. Our forecast assumes that NL offshore output falls by 5% this year—as in the latest provincial government projections—and rises by 5% in 2022—in line with 2020 Canada Energy Regulator expectations. Efforts to restart work at Terra Nova offer upside potential on this front.

We expect soft major project activity to weigh on capital investment. The Muskrat Falls hydroelectric dam is scheduled to be completed this year, and the West White Rose offshore extension venture remains suspended. We expect that work will resume on the latter project next year, in line with provincial government forecasts.

The Come By Chance Refinery remains in idle mode. In 2020, its closure weighed on shipments of upgraded petroleum—the province’s second-largest trade product from 2017 to 2019. As long as the facility stays closed, related exports will likely remain low—though the drag may ease in 2021—and import reliance will likely remain high.

The province’s first multi-year fiscal plan since COVID-19 reached Canadian shores takes several important initial steps to address well-documented long-run demographic and financial challenges on The Rock. Read our take here. Significant for near-term growth are efforts to improve integration and retention among newcomers to the province, and $600 mn in planned fiscal year 2021–22 infrastructure outlays—which may help mitigate the effects of weak capital outlays.


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