Can it rebound?

Can it rebound?

Nova Scotia had a strong economy before COVID-19. Amid mixed economic signals, the province is working to get back on track

Things appeared to be so good.

In late February 2020, Nova Scotia had tabled its fifth consecutive balanced budget, its population and exports were at all-time highs, unemployment was low and the province’s credit rating had never been better. “For the first time in my lifetime, our population had gotten younger,” said Premier Stephen McNeil. “We were moving in a very positive direction.”

Everything changed on March 15 when the first three cases of COVID-19 were announced. Then more cases were identified and a lockdown was implemented. By late July, the province was anticipating an $853-million deficit, rather than the $55-million surplus it was projecting just five months before. “This has impacted the revenue of the province, the bottom line of the province in a way that I don’t think any of us could have predicted,” says McNeil. A financial update was planned for the end of December and it was likely the projected deficit would increase.

An RBC Economics provincial outlook from September noted an $853-million deficit represents about two per cent of the province’s expected GDP. “While this is by far the largest ever recorded by the province in dollar terms, it is one of the lowest as a share of GDP among the provinces,” it said. RBC projected real GDP would be down 5.1 per cent in 2020 but rebound 4.8 per cent in 2021.

Nova Scotia—along with the other Atlantic provinces—has fared better than other parts of the country in its handling of COVID-19, which also meant the economy reopened quicker than most other provinces. As of late November, the reopening has been cautious, striking a delicate balance between having measures to contain the spread of the coronavirus, while allowing people to have some freedoms.

But as gloomy as things have been, the province’s situation pre-COVID is helping fuel optimism for how the economy comes out of it. “I think the hard work that Nova Scotians have been doing prior to COVID puts us in a good fiscal position to rebound,” says McNeil.

Warning signs
The Conference Board of Canada strikes a less optimistic tone than the premier. In its August provincial outlook, it predicted real GDP would drop in Nova Scotia in 2020 by 7.6 per cent, followed by growth in 2021 of 4.6 per cent. Anna Feng, a senior economist with the Conference Board of Canada, says even before the pandemic, there were warning signs for Nova Scotia’s economy. One was the closure of Northern Pulp, a Pictou County mill that’s one of the largest players in Nova Scotia’s forestry industry. “Its closure took a large hit on local forestry manufacturing output,” says Feng.

She says while population growth in Nova Scotia was strong for the past couple years—mostly due to international immigration—it “wasn’t sustainable.”

“Nova Scotia does have an aging issue. We think there will be more deaths than births in the province and that will start to outweigh the positive impacts from the immigration side and that will slow down the population growth,” Feng says.

As of Aug. 31, 2020, Nova Scotia received only half of the immigrants it did for the year-to-date (2,535) compared to the first eight months of 2019 (5,080).

In an email, Kristen Rector, a spokesperson for the provincial Immigration Department, says because of the pandemic and resulting border restrictions, there are challenges for people arriving to the province from other countries. She notes decisions made on admissions to Canada are made at the federal level.

Meanwhile, she says the provincial Immigration Department “continues to process applications and are focused on individuals who work in essential services, including health care and transportation, as well as those who are currently working in the province. The office is also continuing to engage with employers, sectors and other government departments to determine what the labour market needs are now and in the future, and supports settlement service providers across the province.”

Immigration key to recovery
Fred Bergman, a senior policy analyst with the Atlantic Provinces Economic Council (APEC), says immigration will be a key part of Nova Scotia’s economic recovery because it stimulates housing construction and sales, consumer spending and employment growth. “Before the pandemic, we knew we had labour shortages and there were issues around the labour supply going forward because of aging demographics across the region,” he says. “Immigration is a key part of resolving that issue and will be a key part of the recovery as well.” For business owners looking to retire, he says immigrants can help take over those businesses.

Data from the Canada Mortgage and Housing Corporation (CMHC) suggests despite the pandemic, housing starts are holding steady this year. At the end of October 2020, the number of new housing starts for the year-to-date in Nova Scotia was 3,210 compared to 4,080 for all of 2019.

In a strange twist, the housing market in Halifax was seeing “moderate overvaluation,” says Kelvin Ndoro, a senior analyst of economics with CMHC. Even amid the pandemic, bidding wars were common for properties, resulting in homes selling for tens of thousands of dollars above asking price. Ndoro says when the pandemic hit, it resulted in a big reduction in new listings. “Because of that pent-up demand when things opened up, there were more buyers than there were available listings in the market.”

Ndoro says this should fuel an increase in housing starts. “What happens when we have a market that is overvalued, there are risks of overbuilding because builders are going to try to take advantage of the high price and put more units on the market, which is what we are seeing with single and semi buildings going up,” he says. “But at the same time, you also have sellers who are trying to take advantage of that.”

There are other encouraging signs for Nova Scotia’s economy. RBC Economics notes wood product exports have been strong due to “brisk” housing construction in the northeastern United States. Lumber has been in short supply, and Nova Scotia’s wood exports increased more than eight per cent in the first seven months of 2020.

“Nova Scotia’s export sector has rebounded from the pandemic lows this spring,” notes RBC Economics. “In July [2020], merchandise exports were essentially back to pre-COVID levels thanks in part to a rebound in seafood sales. Seafood exports to China picked up materially in recent months after crashing 82 per cent in February in the face of the proliferation of the coronavirus in that country.”

Lobster exports bouncing back
Geoff Irvine, the executive director of the Lobster Council of Canada, says lobster exports rebounded quicker than expected. “Asia returned very quickly,” he says. “We started back into China in March and the Chinese demand has built back to being very good. And then Europe started to recover and then North America started to recover.”

Leah Batstone, a spokesperson for the Halifax International Airport Authority, says cargo shipments were down 18 per cent from January to September 2020, compared to the same time frame the year before, while lobster exports were down 25 per cent. “This decrease can mostly be attributed to the significant impacts on cargo exports earlier in the year when our seven to eight weekly flights to Asia dropped to only one,” she said by email in late November. “We are now back to around six flights weekly, which is fewer cargo flights when compared to the same time as last year.”

Nova Scotia leads the country when it comes to the volume of lobster landings and exports the most live lobster; New Brunswick is tops for processed lobster products.

While the cruise ship industry has been shut down and dining options haven’t fully returned to the way they were, it was feared this would mean a big blow for lobster demand. But Irvine says a surprising thing happened. “We always thought lobster was absolutely a food-service focused protein, but we’re finding through the pandemic, people are buying lobster tails, lobster meat, live lobster, in grocery stores,” he says. “That’s been an interesting trend.”

After a record 2019 year of lobster exports valued at $2.59 billion, an even stronger 2020 seemed reasonable. Pre-pandemic, Irvine says he was “on top of the world.” As of September, lobster exports were valued at $1.539 billion, and with December being a traditionally big month, $2 billion was still in the cards for the year, he says.

Irvine is optimistic 2021 will be a good year. He expects to see continued interest from consumers in buying lobster on the retail side, and he hopes to see sectors such as the food-service industry, casinos and cruise ships reopen. Another boost came late November: Canada signed an interim trade deal with the U.K. to make up for the fact the country is exiting the European Union and therefore the Comprehensive Economic and Trade Agreement (CETA) will no longer apply with the U.K.

Strong stimulus support
Bergman says the Nova Scotia government’s support for shoring up the economy has been strong. In late February, the province tabled its capital budget. Coming in at a shade over one billion dollars, it was the largest in the province’s history. In May, the province announced almost $230 million in stimulus spending on projects like roads, bridges and hospital renovations.

“That capital budget alone for the provincial government is double what New Brunswick’s capital budget would be for this fiscal year,” says Bergman. While the McNeil government has been traditionally known as being somewhat of an austerity government, Bergman notes “we are in very unprecedented times.” He says Nova Scotia was in a better fiscal position than many other provinces and had more cushion to absorb the blows dealt by COVID-19.

APEC forecasted a decline in real GDP of five per cent in 2020, and then for it to jump 3.5 per cent this year.

An economic wildcard
One project that would give Nova Scotia’s economy a big boost is Goldboro LNG, a long-discussed natural gas liquefaction plant in Guysborough County to store and export liquefied natural gas (LNG). Calgary-based Pieridae Energy is the proponent behind the project. The company has stated it will make a final decision on the project by June 30, 2021. It says the facility would be able to produce 10 million tonnes of LNG a year and would have on-site storage capacity of 690,000 cubic metres of LNG. Capital expenditures for the project are pegged at $5-$10 billion. “This will greatly boost Nova Scotia’s economic growth,” says Feng.

According to the APEC’s Major Projects Inventory, Goldboro would create up to 3,500 construction jobs and 200 operations positions. If constructed, the facility will be located adjacent to the Maritimes and Northeast Pipeline, and would transport natural gas from western Canada and the U.S. Besides the economic impact, the project would offer another benefit. “It would also ensure that we continue to have access to natural gas, at least in Nova Scotia and New Brunswick,” says Bergman.

Looking at the oil and gas industry, interest in recent years has been scant. Projects such as Deep Panuke and Sable are both in the decommissioning phases, while exploratory drilling in the Scotian Basin by BP has been abandoned, according to the Canada-Nova Scotia Offshore Petroleum Board. BP’s exploratory drilling licences were poised to expire on Jan. 15, 2021.

As opportunities in Nova Scotia’s offshore look dim in the short term, a different sort of offshore resource holds potential: tidal power. In November, the federal government announced $28.5 million in funding to Sustainable Marine for Canada’s first floating tidal energy array. The hope is this will provide up to nine megawatts of renewable electricity for Nova Scotia’s electrical grid, while reducing greenhouse gas emissions by 17,000 tonnes of carbon dioxide a year. In a news release announcing the project, Sustainable Marine CEO Jason Hayman says this will help support the commercialization of their technology. “Nova Scotia has one of the best natural resources in the world for tidal energy,” he says.

Bergman says this project fits in with the broader plans for the Atlantic Loop, which was first mentioned by the federal government during September’s speech from the throne as a way to “connect surplus clean power to regions transitioning away from coal.” Bergman sees tidal power as having export potential. “With investments in the Atlantic Loop, that kind of makes that more of an option,” he says.

APEC forecasted capital spending in Nova Scotia to drop by six per cent in 2020. “People that invest in these projects need to have some confidence in terms of what’s ahead,” says Patrick Brannon, APEC’s director of major projects. “Until we see a [COVID-19] vaccine in place and some more certainty in the market, it’s gonna take some time for some companies to move forward with their capital spending. But overall, we are expecting a very small increase in [2021 of one per cent] as some of those companies do some of the work they planned in 2020 and move it ahead to 2021. And then once we get to 2022, hopefully we’ll see some more stability in capital spending in the province.” APEC anticipates hospital redevelopment work in Halifax and Cape Breton and on the province’s highways will offset the decommissioning of natural gas projects.

Airline industry needs a lift
Premier McNeil says Nova Scotia’s recovery will depend on the state of the airline industry, which he says will need support from the federal government. “We need a competitive airline industry that protects those regional flights, but also allows us to grow,” he says. “It will determine our collective future here in Atlantic Canada. If we don’t have a competitive airline industry at the end of this going out, our recovery time will be much, much harder to make up, you know, flights will continue to fly over us, people will bypass us. We need that competitive industry to help us capitalize on the strengths we have and the foundation that we had been building over the last number of years.” He says without a competitive airline industry, “Atlantic Canada will hurt more than any other region in the country.”

Airlines are also key for tourism, a sector Nova Scotia has been pinning part of its economic hopes on for years. Consider that in 2014 as part of the Ivany Report, Nova Scotia set a goal of doubling tourism revenue to $4 billion by 2024 for the industry that is its “leading source of service sector exports.”

The ambitious report aimed to provide a roadmap to counter the province’s hovering “on the brink of an extended period of decline. Two interdependent factors—an aging and shrinking population and very low rates of economic growth—mean that our economy today is barely able to support our current standards of living and public services, and will be much less so going forward unless we can reverse current trends.”

While tourism had a record year in Nova Scotia for revenues in 2018 at $2.73 billion, it dipped in 2019 to $2.64 billion and then cratered in 2020 due to COVID-19. APEC projected tourism to decline by $1.7 billion. Hitting $4 billion by 2024 now seems like a fairytale. Rebounding to previous levels won’t happen overnight either. “All those restrictions are blocking tourists from coming into Nova Scotia,” says Feng. “This hurts local hotels, airlines and other businesses that depend heavily on tourism.”

The strength of Nova Scotia’s recovery in 2021 will ultimately depend on one thing. “Nova Scotia has done quite a good job in terms of keeping its daily COVID-19 cases low compared to other regions in Canada,” says Feng. “This gives the province an advantage in keeping its economy open with fewer restrictions. That being said, the largest uncertainty at this point for Nova Scotia’s recovery is the evolution of its COVID-19 situation.” •

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