RBC’s PROVINCIAL OUTLOOK | JUNE 2016

Prince Edward Island

Exports to fuel a steadily growing economy

According to preliminary figures, Prince Edward Island’s GDP expanded by 1.5% in 2015 and was led by growth in private services and exports. These sectors are expected to be the province’s key growth engines again in 2016. The construction sector should provide a lift this year followed by a small drag thereafter, and growth in domestically oriented sectors of the economy should be modest and temper overall economic performance. Our forecast calls for real GDP to expand by 1.3% in 2016 before easing further to 0.9% in 2017.

Exports growing and diversifying

After a strong hand-off from 2015, exports remain on track for continued growth thanks to solid US domestic spending, low Canadian dollar, and continued invest-ments by exporters. Recently announced contracts in the aerospace sector point to firms expanding capacity and production going forward, and rising shipments of lobsters and potato products are driving a 22% gain in food-product exports so far this year. As exports have grown, exporters have diversified their markets with an increased share of provincial exports headed for Asia. In 2015, the United States received 65% of the Island’s exports, which was down from 81% in 2008; where-as, the share bound for Asia rose to 13% from 4% during the same period.

A delayed return to surplus prevents a fiscal drag

Prince Edward Island’s 2016 budget raised the harmonized sales tax (HST) by 1 percentage point to 15% and maintained deficit spending for another year, as the government eschewed cuts to government services. As a result, the public sector will make a small contribution to the otherwise weak domestically oriented side of the provincial economy this year. The impressive 8% year-to-date gain in retail sales is expected to moderate, and overall employment has fallen substantially, thereby putting the province on track for its third consecutive year of job losses. The effect of employment declines on the unemployment rate is being tempered by a steadily declining labour force and working-age population. Like most prov-inces in Atlantic Canada, Prince Edward Island faces demographic challenges, but a relatively high level of international immigration, coupled with a pledge to ac-cept hundreds of Syrian refugees, may forestall them in the near term.

Capital spending jumps in the near term

Capital spending intentions, recently released by Statistics Canada, show a 16% increase on Prince Edward Island in 2016 and the key driver of that growth is a $140-million electricity cable to New Brunswick. While the cable has a large dol-lar value, little of its materials or labour will be locally sourced, thereby minimiz-ing its effect on PEI growth. A large contribution to the construction sector will come from an uptick in government investment activity this year, but looking to 2017 and beyond, the construction industry will face a declining trajectory of pub-lic capital spending and a dim outlook for residential construction brought on by slow population growth.

PEI Exports

PEIUnimployment

PEI Forcast

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