NNoovvaa SSccoottiiaa Demographic - Economic Outlook 2011 - 2021 Prepared For: Prepared By: Canmac Economics Limited April, 2012 Nova Scotia Demographic - Economic Outlook 2011 - 2021 SECTION 1 - NOVA SCOTIA TRADING PARTNERS GLOBAL ECONOMIC ENVIRONMENT The Global economy continued to exhibit a fragile recovery in 2011 – with rescue plans for Greece and worries about Spanish banks adding to an uncertain recovery. Table 1.1 provides the latest World Bank Global Outlook (January, 2012). Overall world growth is expected to reach 2.5 percent in 2012 and 3.1 percent in 2013. Thereafter one can expect the next three years to exhibit growth in the 3.5 percent to 4.0 percent range as the world economy moves from recovery to the normal phase of the business cycle. Table 1.1 The Global Outlook Summary Real GDP growth 2009 2010 2011e 2012f 2013f World -2.3 4.1 2.7 2.5 3.1 Memo item: World (PPP weights) -0.9 5.0 3.7 3.4 4.0 High income -3.7 3.0 1.6 1.4 2.0 Euro Area -4.2 1.7 1.6 -0.3 1.1 Japan -5.5 4.5 -0.9 1.9 1.6 United States -3.5 3.0 1.7 2.2 2.4 Developing Countries 2.0 7.3 6.0 5.4 6.0 East Asia and Pacific 7.5 9.7 8.2 7.8 7.8 Europe and Central Asia -6.5 5.2 5.3 3.2 4.0 Latin America and Caribbean -2.0 6.0 4.2 3.6 4.2 Middle East and N. Africa 4.0 3.6 1.7 2.3 3.2 South Asia 6.1 9.1 6.6 5.8 7.1 Sun-Saharan Africa 2.0 4.8 4.9 5.3 5.6 Source: World Bank. Notes: PPP = purchasing power parity, e = estimate, f = forecast. 2 Nova Scotia Demographic - Economic Outlook 2011 - 2021 Both the U.S. and Canadian economy are showing signs of revival from the recent recessionary period. The main forecast risk moving forward is for a high inflationary period followed by high interest rates to curb inflation. To date the U.S. and Canadian monetary policy authorities have been very accommodating. The following assumptions are used in Canmac’s econometric simulation model to project Nova Scotia’s economic outlook. 2011 2012 2013 2014 2015 -2021 Canadian GDP % Growth 2.5 2.6 2.6 3.1 3.1 US GDP % Growth (2002 $billions) 1.7 2.2 2.4 3.1 3.1 3 Nova Scotia Demographic - Economic Outlook 2011 - 2021 SECTION 2 - NOVA SCOTIA OUTLOOK GEARING UP FOR PROSPERITY In 2010, the Nova Scotia economy stood at 945,000 persons. The economy had an economic output (Real GDP millions of $2002) of $29,951 and employed 452 thousand persons. The inflation rate was 2.2 percent and the unemployment rate was 9.3 percent. Historically, the Nova Scotia economy has underperformed relative to the Canadian economy. Charts 2.1 to 2.3 show that Nova Scotia’s average GDP growth has been 1.3 percent compared to the average of all Canadian provinces of 1.5 percent. Nova Scotia’s personal disposable income per capita in 2010 was $27,308 compared to the all province average of $28,828. Finally, the province’s unemployment rate was 9.3 percent compared to the all province average of 8.6 percent. 4 Nova Scotia Demographic - Economic Outlook 2011 - 2021 By 2021, Canmac projects that: • the economy will grow to 34,522 ($2002 millions); • the labour force will be 469.5 persons; • the inflation rate will be 2.5 percent, and • the unemployment rate will be 2.1 percent. STRATEGIC DRIVERS ON THE DEMAND SIDE – TRADITIONAL MARKETS Nova Scotia’s future economic success, like all small open economies, depends on the success of its export markets. It is export markets that drive provincial prosperity by earning income outside the province’s boundaries that are then respent in the domestic market. Figure 2.1 shows the province’s exports disaggregated into exports to Canada and international exports. The rest of Canada is a slightly more important market for Nova Scotia than the rest of the world with 53.8 percent of total exports. Exports to the rest of Canada is dominated by service exports (78.2 percent of total service exports) whereas international exports have 58.8 percent of total goods exports. In addition to the official exports, it should be mentioned that Nova Scotia has a high concentration of defence related establishments. Nova Scotia has approximately 40 percent of all Canadian military assets. Hence, Nova Scotia is also a high ‘exporter’ of defence services to the rest of Canada. Employment in this sector totaled over 10,000 in 2010 (military personnel only). 5 Nova Scotia Demographic - Economic Outlook 2011 - 2021 STRATEGIC DRIVER ON DEMAND SIDE - LARGE SCALE PROJECTS Over the medium to long term, the Nova Scotia economy is poised for a major surge as its traditional ‘export’ markets receive a major boost from large projects. There are many exciting developments gathering momentum in the Nova Scotia economy. Some of the major projects are: 1) The $960 million Deep Panuke natural gas field is about to start production. 2) A $25 billion Irving Shipyard federal shipbuilding contract is in the planning stages. 3) A successful Shell bid of $971 million for offshore oil exploration rights was completed – the largest bid of its kind ever seen in Atlantic Canada. 4) A joint venture between the Nova Scotia and Newfoundland and Labrador governments to develop a hydro project on the lower sector of the Churchill River in Labrador will help boost investment and provide jobs for Nova Scotians between 2013-16. The $6.2 billion Lower Churchill Power Project includes a 180-kilometre, subsea transmission cable costing $1.2 billion that will bring hydro electricity to Cape Breton, Nova Scotia. The total amount of new projects is impressive. Currently on the province’s books are major projects (over $300 million) in the following categories: • Shipbuilding, Energy, Oil & Gas Exploration and Development – $27.5+ billion. • Residential Development - $3.5+ billion. • Infrastructure and Education - $0.9+ billion. In addition, there are other major projects (over $300 million) either nearing approval or under active consideration. These include: • Energy Related - $2.4+ billion. • Infrastructure and residential - $2.2+ billion. Appendix A provides a more detailed listing of these projects. 6 Nova Scotia Demographic - Economic Outlook 2011 - 2021 LARGE PROJECT ECONOMIC IMPACTS The potential economic impacts of these large capital projects will have a significant positive impact on Nova Scotia in the coming years. The Deep Panuke natural gas project is scheduled to come on stream in 2012 and provide direct employment of 200 workers and pump $150 million per year into the economy. The Shell exploration project will provide direct employment during the exploration phase but the real payoff will come with the potential development of further oil and gas in the offshore. The Lower Churchill project is expected to provide over 1,200 jobs to the Nova Scotia economy during the construction phase. The major economic impact for the Nova Scotia economy will be the construction of Canada’s combat vessels at the Irving Shipyard in Halifax. ECONOMIC IMPACT – IRVING SHIPBUILDING CONTRACT An economic impact assessment of the $25 billion Irving Shipyard contract was completed by the Conference Board of Canada as part of the Irving Shipyard bid proposal. Chart 2.4 shows Nova Scotia real GDP emanating from the contract. As shown in the figure, output increases beginning in 2012 at $344 million greater than would be the case without the contract. Thereafter output increases steadily to a maximum of almost $1 billion ($977) in 2021 and stays over $800 million 7 Nova Scotia Demographic - Economic Outlook 2011 - 2021 until the conclusion of the project in 2030. This output change is due to three effects, 1) the direct project expenditures (less imports), 2) the respending of the project expenditures on local suppliers, and 3) the respending by households in Nova Scotia on Nova Scotia goods and services. In 2010, Nova Scotia’s real GDP was $29,951 million (2002$). It’s growth from 2010 was 1.91 percent. To a first approximation, a 1 percent increase in Nova Scotia real GDP implies a growth of $300 million (2002$). In 2012, the shipyard project will increase GDP growth by 1.14 percent over and above that expected by forecasters before the project award. This represents an almost doubling of the provincial forecast by what was expected before the contract award. Total employment increases resulting from the shipyard project are provided in Chart 2.5. Employment will increase from 4,423 in 2012 and peak at 11,495 in 2020. Table 2.1 shows the distribution of total employment in 2020. As expected, manufacturing has the majority of employment opportunities. Interpretation of the Conference Board’s impacts suggests that a major portion of employment opportunities will come not from the existing resident labour force but new additions to the labour force (which occurs by decreasing out migration or by in migration). 8 Nova Scotia Demographic - Economic Outlook 2011 - 2021 Table 2.1 – Irving Shipyard Contract Nova Scotia Distribution of Total Employment 2020 Industry Distribution Total employment 11,495 Agriculture & other primary sector 34 Manufacturing 7,397 Construction 353 Utilities 50 Transportation & warehousing 127 Wholesale and retail trade 1,171 Finance, insurance and real estate 240 Other commercial service industries 2,040 Public administration & defence 84 Unemployment -5,095 Source: Conference Board of Canada STRATEGIC DRIVER ON THE DEMAND SIDE – FEDERAL GOVERNMENT TRANSFERS The other key demand driver for the Nova Scotia economy is federal government transfers.