Heading into 2021, New Brunswick healthier than most other provinces

Although the number of COVID-19 cases in New Brunswick has spiked higher recently, with 45 outbreaks per 100,000 (Nov. 5), the province has the second-lowest incidence of the virus in Canada. To put this number in perspective, the rate for the entire nation is 624 per 100,000 and for the U.S., across the border, the rate is 2,851/100,000.

With a lower incidence of COVID-19, the province was able to re-open earlier than most of the rest of the country. As a result, close to 60% of the province’s businesses that closed in March and April were open again by July. This was the highest percentage among the 10 provinces.

Based on Stats Canada data, 2,886 businesses have opened in the province over the past four months, the bulk of which have been in the construction industry (16.0%) followed by retail trade (11.4%) and accommodation and food services (11.3%). Fuelled by the rise in business openings, full-time hiring rose by +10.5% between April and October, the fourth fastest jobs gain in the country.

Although economic activity in the United States, the market for 90% of New Brunswick’s foreign exports, rebounded sharply (+33% GDP SAAR) in the third quarter, the province’s exports to its southern neighbour were down by -28% y/y. This decline, which was by far (81%) the major contributor to the 30% drop in the province’s total exports, was mostly due to a -66% y/y drop in shipments of petroleum products, offsetting gains in forest products (i.e. lumber and newsprint), lobsters and natural gas. Going forward, stronger growth in the U.S. should have a positive impact on New Brunswick’s petroleum exports in the first half of 2021.

Despite COVID-19, N.B. home sales at record high

Over the past three months, housing demand in New Brunswick — as reflected by sales of existing homes — has exhibited unprecedented strength. Compared to the third quarter of 2019, sales are up by +25% y/y largely due to stronger sales in Moncton (+31% y/y) and Fredericton (+24%).

This surge in sales appears to have been the result of four factors. First, net migration in the twelve months before the onset of the virus was up by +33% y/y. Second, there was a surge in pent-up demand following the re-opening of the economy in the wake of the first wave of COVID-19. Third, over the past 6 months, the economy has clawed back 75% of the full-time jobs it lost in March and April. Fourth, mortgage interest rates hit record lows in the third quarter.

Strong demand and a shrinking supply of real estate offerings, indicated by the record low months’ supply of homes for sale, have driven average house prices in the province up by a record +19% y/y in September. In light of the strong demand, indicated by the recent record price hikes and the record low number of completed and unoccupied dwellings, it’s not surprising that housing starts in the province over the past five months are up +7% y/y.

Looking ahead, the combination of a post-COVID slowdown in net migration, higher home prices and softening pent-up demand will probably cool housing demand in the near term. However, the effects of stronger net migration in the first half of 2021 and persisting low interest rates should cause residential construction to pick up steam next year.

Capital spending retreats again in 2020; picks up in 2021

The two most comprehensive surveys of capital spending in New Brunswick are both painting a relatively somber picture of the province’s near-term investment prospects. First, according to Statistics Canada’s revised Non-residential capital and repair expenditure survey, total capital spending on non-residential construction and machinery and equipment is projected to decline by -13% in 2020 following a drop of similar magnitude in 2019. Capital spending in 2020 will retreat in health care (-31%), education services (-24%), public administration (-4%) and wholesale trade (-34%).

The Atlantic Provinces Economic Council’s (APEC) Major Project Inventory has also reported that spending on public and private capital projects will shrink this year, by -9%. However, the public and private organizations surveyed by APEC indicated they planned to increase their CAPEX spending by +3% in 2021. Specific projects scheduled to start in 2021 include upgrades to the Mactaquac generating station, the Fundy Quay development and the Sisson tungsten-molybdenum project. Looking further ahead, the province has given exploration rights to Atlantic Potash Corporation to study and potentially develop the Millstream potash deposit.

New Brunswick, like the rest of the country, faces significant challenges due to ongoing uncertainty about the potential negative effects of COVID-19 on growth and employment. Having said this, given that the province was able to limit the spread of the virus so effectively in March and April and, as a result, recover more quickly than the rest of the country, the province will be better prepared to minimize the impacts of further outbreaks going forward. Based on this assumption, we expect the province’s GDP to grow in the range of +3.5% to +4% in 2021 and by +2% to +3% in 2022.

John Clinkard has over 35 years’ experience as an economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.

Real* Gross Domestic Product (GDP) Growth —
New Brunswick vs Canada