REVIEW OF 1997
Economic performance in 1997, while weak on some fronts, was better than expected. Significant gains were recorded in retail sales, investment and exports. These growth areas, however, were more than offset by losses stemming from the completion of the Hibernia oil production platform, public sector restraint, particularly at the federal level, and high levels of out-migration. The net result was an estimated 1.3 percent decline in real GDP.
Low birth rates combined with high out-migration led to a 1.4 percent decline in
population. In keeping with past trends, population losses were concentrated in rural
areas.
Incomes declined as wages and salaries fell by 2.6 percent, resulting mainly from the loss of high-wage Hibernia construction and federal public sector jobs. TAGS benefits were also reduced as more people were dropped from the program.
LABOUR MARKETS RESILIENT
Average employment related to Hibernia was approximately 3,000 person years lower last
year and public sector employment fell by 1,400. In spite of employment losses in these
areas, the economy demonstrated a fair degree of resilience, as sizable employment gains
were recorded late in the year. Overall, employment grew by 1.1 percent, bolstered by
gains in fish processing, other manufacturing and Community Business and Personal Services
(CBPS). These employment gains, coupled with a stable labour force, caused the
unemployment rate to drop 0.6 percentage points to 18.8 percent on an annual average
basis.
RETAIL SALES STRONG
The combination of higher employment, low interest rates, rising consumer confidence and the lowering of Provincial sales tax through the introduction of the HST stimulated a rebound in retail sales. Retail sales grew by 5.7 percent, mainly on the strength of a 29.5 percent jump in the number of new cars sold.
INVESTMENT GREW
Investment spending in the Province grew by 9.3 percent with gains being broadly based.
Spending on the transshipment facility at Whiffen Head together with increased investment
by the government and communication and utility sectors were major growth areas.
EXPORT SECTOR CONTINUED TO EXPAND
The export sector also did well last year, the result of widespread production increases. Fish product exports were bolstered by a 12.6 percent increase in the volume of fish landings due to higher catches of cod, crab and shrimp. The value of mineral shipments grew by 9.4 percent led by strong gains in iron ore production. Newsprint shipments and refined petroleum production both increased to record levels. Service sector exports grew as the tourism industry received a boost from the Cabot 500 celebrations. The first shipment of Hibernia crude also added to the gain. Overall, exports grew approximately 5.2 percent.
THE NATIONAL CONTEXT
Historically low interest rates and shrinking government deficits kick-started the national economy in 1997, paving the way for the best domestic demand performance of the decade. Domestic demand, led by strong gains in consumer spending and business investment, was the predominant factor fueling GDP growth. Last year also witnessed some of the strongest employment gains in ten years. An estimated 372,000 full-time jobs were created in 1997, double the average annual pace since 1987. Employment gains, low interest rates and the "wealth effects" generated by rising equity markets all served to boost consumer confidence. Business investment also rose last year, buoyed by low borrowing costs, heightened confidence and the need to increase production capacity. Despite increased demand for labour and capital, continued excess capacity on the supply-side (i.e., high unemployment levels) was paramount in subduing underlying cost pressures. Deficit vigilance on the part of the federal government continued to exert fiscal drag on the economy as well. In contrast to the export-driven growth of 1996 and subsequent trade surplus, a trade deficit emerged last year in response to the sharp rise in the demand for imports. This trade imbalance, coupled with lower commodity prices stemming from turmoil in Asian financial markets, triggered a depreciation of the Canadian dollar vis-à-vis the US dollar. The Bank of Canada started raising interest rates in the second half of 1997 in an effort to combat the slumping Canadian dollar and head off potential inflationary pressures. The bank rate was increased four times and ended the year at 4.5 percent. THE NATIONAL OUTLOOK Increasingly solid economic fundamentals, including renewed fiscal health and low inflation, have already helped stabilize the dollar in recent months and should ease upward pressure on interest rates in the months to come. The economic impact of Asian instability will likely be felt indirectly through weaker commodity prices and a consequent slowdown in the resource sector. However, the strengthening trend in domestic demand established last year should spill over into 1998, fueling real growth of 3.0 to 3.5 percent and employment growth of two percent. The unemployment rate is expected to fall from 9.2 percent in 1997 to 8.4 percent this year. |
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