AVOIDING THE WORST
Though not immune to the pandemic or without its own unique challenges, Prince Edward Island has avoided the worst of the first wave.
The province’s small population and island status have helped it keep COVID-19 infections to a minimum and begin reopening earlier than most other jurisdictions; this is perhaps its greatest advantage going forward. To date, there have been no hospitalizations or deaths in PEI, nor have there been signs of a second wave within its borders, though physical distancing and travel restrictions remain in place.
In line with these successes, PEI’s y/y ytd declines in full-time employment and hours worked are among the most muted of any province (chart). Though some of that strength reflects January and February gains, the Island was the only region in which Q2-2020 wages and salaries rose versus the same period in 2019. The retail & wholesale trade sector appears to have benefited from particularly strong activity at food and merchandise stores during lockdowns that may prove transitory. However, resilience in construction and manufacturing also contributed. The former mirrored housing market strength vis-à-vis the release of pent-up pre-pandemic demand. The latter reflects operation of the food manufacturing segment and rise in food prices during lockdowns, which have also lifted sectoral exports.
Also expected to cushion the Island economy from COVID-19-related blows in the coming months are ongoing infrastructure plans. Recall that the Province had already increased infrastructure spending plans before the pandemic in order to meet the needs of its rapidly growing population. The November 2019 Capital Plan assumed outlays of $156 mn (more than 2% of 2019 nominal GDP) in FY21, with a further $153 mn pencilled in for the next fiscal year.
The Island’s staple agriculture industry has also held up reasonably well amid the lockdown period, but faces an uncertain outlook. Crop receipts are up more than 20% ytd y/y in H1-2020, anchored by surging prices for staple potatoes. There are concerns that travel restrictions limiting inflows of a needed agricultural workers, summer drought, and early planting decisions reflecting expectations of softer pandemic potato demand will hold back production going forward. However, any resulting market tightness could further support prices in the coming months.
The trajectory of population growth is a key risk for province’s economy. From July 1, 2016 to July 1, 2020, PEI’s headcount advanced by over 10%—its steepest-ever recorded four-year climb and the most of any region in Canada—reflecting hefty immigration levels and, more recently, positive net migration from other provinces. Given these results, safe resumption of migration flows are critical for PEI’s longer-run prospects.
The tourism industry presents another vulnerability. The sector has been hit particularly hard by travel restrictions and limited movement around the globe, and this plays an outsized role in the Island economy. The good news for PEI is that activity has improved because of the Atlantic Bubble: the Province reports that bridge, air, and ferry traffic and overnight stays on the Island have improved since the Bubble opened in July.
Sources for chart and tables: Scotiabank Economics, Statistics Canada, CMHC, PEI Finance.
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