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BMO Bank of Montreal

December 07, 2011 09:48 ET

BMO Economics: New Brunswick Growth to Hold Steady in 2012, Rebound in 2013

- Economic boost expedited in 2013 when potash production comes on stream

- Consumer spending holding firm

- Real GDP growth of 1.4 per cent in 2011; 1.5 per cent in 2012 (Canada's at 2.3 per cent in 2011; 2.0 per cent in 2012)

FREDERICTON, NEW BRUNSWICK--(Marketwire - Dec. 7, 2011) - After a firm post-recession rebound in 2010, economic growth in New Brunswick has slowed following a shift from fiscal stimulus to restraint, according to the Provincial Outlook report released today by BMO Economics.

"Spending restraint, combined with modest U.S. economic growth, has likely held growth to 1.4 per cent this year, with a modest increase to 1.5 per cent expected for 2012," said Robert Kavcic, Economist, BMO Capital Markets.

Some major private-sector capital projects are set to wind down in 2012, including Potash Corp.'s $1.7 billion Sussex mine development and the $1 billion Point Lepreau nuclear plant refurbishment. "By 2013, however, growth will get a boost as potash production comes on stream," noted Mr. Kavcic.

"Despite some recent softening in the provincial outlook, New Brunswick businesses continue to look to the future and make critical investments in their operations to improve productivity," said John Duff, Commercial Area Manager, New Brunswick and PEI, BMO Bank of Montreal. "Our exporters continue to face some challenges given our strong ties to the U.S. economy, however many have approached the challenge as an opportunity to rethink their supply chains and look to diversify their export markets."

Total capital spending by the Province is pegged at $593 million in fiscal 2011-2012, down from $940 million in fiscal 2010-2011 when the stimulus program was still in force. Meantime, as U.S. growth remains soft, exports and manufacturing activity should downshift after a strong performance so far in 2011. Exports were up nearly 30 per cent year-over-year in Q3, led by energy products and agriculture. "New Brunswick has the distinction of being Canada's most export-dependant economy; exports represent more than 70 per cent of its GDP, with about 85 per cent heading south of the border to the U.S.," noted Mr. Kavcic.

Consumer spending has held firm, up 4.9 per cent year-over-year in the third quarter, despite some headwinds including a higher tax burden. Personal income tax reductions have been suspended, which will leave marginal rates unchanged in 2012 from lower levels in 2011. Going forward, spending should also be held back by a soft labour market, which saw the jobless rate hover near 10 per cent for much of the year, and employment drop 1.3 per cent year-over-year through November.

New Brunswick's second quarter fiscal update increased the fiscal 2011-2012 deficit estimate to $546 million, from the $514 million first quarter estimate and the Budget's $449 million. The Province is targeting a return to balanced budgets by fiscal 2014-2015.

The full Provincial Monitor can be downloaded at www.bmocm.com/economics.

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