Overview

Overall economic performance this year is on target with earlier projections made by Government in its Budget this past spring. Dampening impacts of the strike at the Abitibi-Consolidated Inc. newsprint mills and the delay in the Voisey's Bay project have been offset by stronger than expected fish landings and a strong consumer sector. Combined, these factors are expected to have a negligible effect on the forecast. Real GDP is now expected to grow by 4.4% this year compared to 4.5% predicted in the spring. Several private sector forecasters expect Newfoundland and Labrador to lead all provinces in growth in 1998.

Employment growth has been strong, reflecting the improvement in the provincial economy. In the January to November period, employment averaged 3.3% higher than the same period in 1997. On an industry basis, gains have been recorded in both goods and services industries. The unemployment rate averaged 18.0% during the eleven month period, 1.1 percentage points lower than in the same period in 1997.

The consumer sector is performing well, buoyed by higher employment and increased consumer confidence. Retail sales were up by 2.9% in the first nine months of the year--gains were broadly based with increases recorded in many store types. The number of new vehicles sold increased by 3.9% during the same period. Low inflation and relatively low interest rates helped the consumer. Inflation, as measured by the change in the Consumer Price Index (CPI), averaged 0.2% in the first ten months of 1998. It is expected that inflation this year will be the lowest recorded since 1953.

The prime rate has edged upwards over the last year as the Bank of Canada responded to a weak Canadian dollar and the Asian financial crisis. However, rates remain below those of the early to mid 1990's.

Investment spending in the Province is expected to grow by 6.7% this year. Gains will be concentrated in the oil and gas industry (i.e., development of Terra Nova), the manufacturing industry, the communications and utilities industry, and the public sector (new hospital and road construction). Housing starts are expected to be down for the year (they declined 6.8% in the first three quarters), however, total residential investment is expected to increase somewhat as renovation expenditures continue to grow.

The export sector is the main driver of economic growth this year. Production of oil from Hibernia combined with growth in fish landings and increased iron ore output will lead to an expected 12.8% rise in exports. Fish landings were up by about 30% in the first nine months, bolstered by higher catches of shrimp, crab and capelin. In addition, shipments of iron ore increased by 6.8% in the first nine months of the year. Furthermore, some 18 million barrels of oil have been produced at Hibernia in the first ten months of 1998. These increases have more than offset the negative impact of the strike at the two Abitibi-Consolidated newsprint mills.

Despite strong economic growth, the Province's population continues to decline. As of July 1, population was 1.8% lower than one year earlier reflecting low birth rates and out-migration. Recent reforms to the UI/EI system together with ongoing restructuring in the fishery and strong economic growth in Ontario and Alberta have been associated with higher levels of out-migration.

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