The Canadian economy has begun its gradual climb out of the deep hole left by the COVID-19 pandemic. Real GDP is on pace to contract 6.0% this year, the deepest decline of the post-war era. That said, businesses have begun to gradually open across the country, and data on employment, spending and housing activity have already begun to improve by May. As a result, we should see a solid 6.0% rebound in national growth in 2021, with the economy returning to pre-COVID levels of activity by 2021Q4. Regionally, all provinces have been hit by the pandemic, forcing economic shutdowns and digging deep fiscal holes. While the depth of each will vary somewhat across the country, every region of Canada has been impacted significantly.

British Columbia looks to outperform this year, with shutdowns never running quite as deep as the rest of the country overall. Real GDP is expected to contract 5.3% in 2020, before rebounding 6.3% in 2021. Keep in mind that this was the strongest larger economy pre-COVID, with growth averaging 3% in the four years through 2019.

Alberta, Saskatchewan and Newfoundland & Labrador face the additional challenge of lower oil prices, with front-month WTI famously falling into negative territory early in the pandemic. Prices have since recovered, but the energy-sector backdrop nevertheless remains an additional drag. The real GDP decline will likely be deeper than average in all three of these provinces this year, while their jobless rates should trend above the national average.

Manitoba is traditionally the most stable economy on the provincial landscape, with a very diverse industry base usually cushioning any downturn. True to form, the province will likely outperform through the downturn, but lag during the recovery.

Ontario’s economy entered the pandemic with the strongest growth trends in more than 15 years. But, with the largest urban centre, the province has struggled more than most with the shape of its COVID curve and longer lockdowns. In fact, through May, the share of small businesses that were fully open was near the lowest in Canada, according to CFIB survey data. The province should outperform as lockdowns ease.

Similarly, Quebec was enjoying multi-decade highs for economic growth before the pandemic, but has struggled the most with COVID cases. That prompted some more aggressive lockdowns through the spring (a full shutdown of the construction sector, for example). That said, the province was also much quicker to re-open than Ontario through May, which should help temper any economic underperformance.

Finally, Atlantic Canada fared very well on the COVID front on a relative basis, but much of the regional economy was nevertheless shut down. Still, New Brunswick and Prince Edward Island led the country in terms of small business openings as of late-May, even as Nova Scotia has been more cautious. Longer term, a population boom had spurred above-potential economic growth in the region pre-pandemic, but one wonders how quickly those inflows will resume.

Counting the Fiscal Costs

The COVID-19 shock is carving a massive hole in government finances around the world; and, Canada is no exception. But, given the vast amount of uncertainty around the economic backdrop, and rapidly evolving programs to cushion the blow, we’ve heard precious little on the impact on government fiscal balances.

BMO Economics estimates that the federal government is on pace to post a deficit of at least $225 billion in FY20/21 before any further measures are announced. That's much deeper than the $28.1 billion deficit forecasted in the 2019 Economic and Fiscal Update. For a detailed analysis, see our report here.

At the provincial level, revenues have clearly fallen off, and combined direct provincial COVID-19 support measures look to be in the $30 billion range overall. The deep plunge in oil prices is another factor, which adds a further impact on the producing provinces. All told, we estimate that the combined provincial deficit will run at roughly $72 billion this fiscal year, or 3.0% of GDP, while net debt will jump to 34% of GDP after dipping below 30% last year. Borrowing programs have ramped up significantly, and the provincial total could run at around $150 bln this fiscal year.

Here is a quick look at the fiscal situation in each province ahead of more meaningful fiscal updates later in the year. In all cases, we’ve estimated total COVID-related spending increases, scaled revenues based on our current economic outlook versus each province’s pre-COVID assumption, and accounted for other special factors (such as resource royalties) where appropriate:

British Columbia: The last remaining AAA credit was recently put on negative outlook by S&P. The Province entered the downturn in the strongest fiscal position in Canada, and will likely remain there, even with the deficit expected near $8 billion. That includes roughly $5 billion in COVID-support measures including a support benefit for those unable to work, and an increased/expanded BC Climate Action Tax Credit.

Alberta: COVID-support measures are compounded by the decline in oil prices, which will pull royalties down sharply (near zero). One issue is how quickly those royalties recover even if oil prices do, given that current-year losses might be carried forward for some time. The deficit is likely to be near $20 billion this fiscal year, or more than 5% of GDP.

Saskatchewan: The oil price decline has hit the province as well and will dig into the budget balance even if direct COVID-support measures are somewhat lower than in other jurisdictions. The deficit will likely come in at more than $2 billion, topping 2.5% of GDP, though the budget was effectively balanced last year.

Manitoba: The province is typically the least volatile from an economic and fiscal perspective given the diverse industry base—recall the much shallower decline during the financial crisis. However, given the nature of this downturn, that buffer won’t be nearly as large. The economic impact and various support measures should push the deficit to nearly $3 billion.

Ontario: An early look at the fiscal impact of COVID-19 pegged the deficit at $20.5 billion. While there were ample contingencies in that outlook, we suspect there is still some further downside. For example, real GDP was expected to be flat for 2020 versus our current -6.0% call. At the other extreme, the FAO pegged the deficit at $41 billion alongside a 9% decline in real GDP. While possible given the vast uncertainty, we’d view that as the high end of the range.

Quebec: The Province has informally guided, on multiple occasions, to a deficit in the $12-to-$15 billion range. Details of the revenue impact and support measures are expected later this month. Keep in mind that Quebec entered this downturn with very strong fiscal momentum.

New Brunswick: Our estimate is roughly in line with a late-May fiscal update that pegged the deficit at $300 million, though with potential for further COVID-related spending to come.

Nova Scotia: The Province is coming off a run of five consecutive balanced budgets and a steadily declining net debt-to-GDP ratio. A solid economy and sound fiscal management left Nova Scotia in good position to weather this downturn from a fiscal perspective. At around 1% of GDP, the deficit should remain modest, but there is much uncertainty around this estimate. Note that provinces with a high share of federal transfer revenue, tax collection agreements and less Crown corporation reliance will have more stable cash flow, regardless of accrual deficit accounting—Nova Scotia is among the most stable from that perspective.

Prince Edward Island: There was a quiet economic boom on the island pre-COVID, and real GDP growth actually led the country by a wide margin at 4.5% last year. This year is going to look much different, with the tourism sector likely under intense pressure this summer.

Newfoundland & Labrador: Low oil prices will again weigh heavy on the province, with the deficit expected to widen above $2 billion again. Note that the deficit peaked at $2.2 billion in FY15/16 when the Province was under fiscal stress.

This addition of Provincial Monitor welcomes responses from each Canadian province to some of the most common questions asked during the BMO Government Finance Conference Virtual Series. Responses follow in each provincial section.

British Columbia

The B.C. economy is expected to contract 5.3% this year, slightly shallower than the 6.0% decline expected nationally. Growth should rebound 6.3% in 2021.

The province entered the downturn in a position of strength, and had earlier success in flattening the COVID curve than Quebec and Ontario.

The unemployment rate is expected to remain below the national average, at 9.0% for all of 2020, versus 9.5% for Canada.

Housing market activity has effectively paused, with new listings and sales both falling sharply since mid-March. As a result, prices have held steady so far.

The Province has rolled out roughly $5 bln in support measures, including various tax deferrals, support for those with lost jobs and a cut to the commercial property taxes. BMO Economics estimates that the deficit could be above $7 bln in FY20/21 (2.3% of GDP), but a fiscal update from the Province is pending.

Questions from the Government Finance Conference

The Province of British Columbia

Q: What impact are you seeing on the real estate market post-COVID?
A: "The real estate market is expected to slow in the coming months as the effects of COVID-19 are fully realized. BC has seen a substantial decline in home sales in April which was the largest monthly decline on record (data going back to 1988). It is too early to estimate the effect on BC’s housing market as there is still a great deal of uncertainty. The Canada Emergency Commercial Rent Assistance (CECRA) program is providing significant financial relief to most small businesses, particularly those in non-essential industries that have temporarily ceased operations or have experienced a significant drop in revenues. The BC government announced that eligible businesses under CECRA will be protected from eviction until June 2020. The province will monitor the situation and work with our federal counterparts to address any challenges in the coming months."

Q: How important is the international funding market given increased borrowing requirements?
A: "The international market will continue to be important to British Columbia as it allows us to further diversify our investor base. British Columbia will consider USD global issues as well as Euro offerings in public or private markets. Offshore debt issuance will be based on all-in costs after hedging and we will continue to compare these costs to domestic issuance for similar terms."

Alberta

The Alberta economy is expected to contract 7.0% this year, deeper than the decline expected nationally.

The province entered the downturn already in a position of relative weakness, and the steep decline in oil prices (and associated pullback in production) adds another headwind in the near-term. Production was down 13% y/y in April, though still up slightly on a year-to-date basis.

The COVID curve in Alberta hasn’t been as steep as in Ontario and Quebec, and the province has been faster to re-open. The CFIB reports that roughly half of small businesses were fully operational through the second half of May, among the highest share in Canada.

The unemployment rate jumped to 15.5% in May, and is expected to average 10.5% for all of 2020, versus 9.5% for Canada.

The Province has rolled out roughly $4 bln in direct support measures (1% of GDP). BMO Economics estimates that the deficit could be around $19 bln in FY20/21 (just over 5% of GDP), including a hit to resource revenues from low oil prices. A fiscal update from the Province is pending.

Questions from the Government Finance Conference

The Province of Alberta

Q: How has your dialogue been with rating agencies through this period and are you comfortable with the way they are approaching the challenges associated with the shutdown and increased funding requirements? Is there a sense of leeway on ratings given that most jurisdictions around the world are facing the same shock?

A: "Although our dialogue with rating agencies is fairly constant, it is safe to say that it has increased in frequency over the course of the past weeks. Obviously, the impact of the pandemic combined with the global oil price wars will have an impact on Alberta’s fiscal situation. We believe that ratings should reflect the long term strengths of the Province, including its fiscal capacity, demographic advantages and history of fiscal prudence which sees us entering this crisis with the lowest debt burden of any province."

Q: Are you now comfortable with your funded position and how do you see your issuance playing out going forward?

A: "In recent years we have run our borrowing program and our investor relations activities in such a way as to maximize our access to global markets and investors not just to reduce costs but to ensure access to capital in times such as these. In the first ten weeks of fiscal 2020-21 we have raised $11.6 billion across 5 currencies. Certainly liquidity struggled in the first few weeks, particularly in the Canadian domestic market, but we remain confident in our ability to borrow."

Saskatchewan

The Saskatchewan economy is expected to contract 6.2% this year, somewhat deeper than the decline expected nationally.

The province came into the downturn with an already-weak economic backdrop, as the resource sector was challenged by low prices.

That said, the COVID situation has been milder than in most other provinces, leaving the province earlier flexibility to begin re-opening. Various retailers of books, clothing, electronics, as well as some services are now open. The CFIB reports that more than half of small businesses were operating as of late May, well above the national average.

The unemployment rate rose to 12.5% in May, and is expected to average 9.7% for all of 2020, versus 9.5% for Canada.

The Province has rolled out roughly $400 mln in direct support measures. BMO Economics estimates that the deficit could top $2 bln in FY20/21 (2.6% of GDP), including a hit to resource revenues from low oil prices.

Questions from the Government Finance Conference

The Province of Saskatchewan

Q: In addition to COVID 19, Saskatchewan has had to deal with the negative impacts of lower energy prices. Can you discuss the additional impact this is having on the economy and budget?

A: "Oil will be a headwind given what happened to oil prices in March and April, both in royalty revenues and economic growth through lower potential drilling activity. It has recovered on both WCS and WTI lately. We will have data on the expected impacts when we produce the budget on June 15. Oil revenues represented 6% of the expected 2019-20 revenues as reported at mid-year."

Q: Outside of oil, how have other revenue sources such as potash and agriculture been affected by COVID-19?

A: "2020 Potash volumes are coming in as expected, with a moderate softening in prices of 15% compared to 2019, based on the recent China contract pricing. It remains relatively unaffected by COVID-19. Similarly, agriculture has not been as impacted by the virus, except to the extent that farm retail and elevator facilities have more restrictions. Seeding is mostly complete in the province, and prices for primary crops remained fairly stable through the pandemic."

Manitoba

The Manitoba economy is expected to contract 4.8% this year, milder than the decline expected nationally. Manitoba has typically weathered downturns much better than the rest of Canada, but COVID-related lockdowns will still weigh heavily. That said, re-opening began in phases as of May 4^th, and the overall decline this year will likely be shallower than the larger provinces that have more challenging pandemic curves.

The unemployment rate is expected to rise sharply, but remain below the national average at 8.4% for all of 2020, versus 9.5% for Canada.

Housing market activity has stalled, with new listings and sales both falling sharply through April. As a result, prices have held steady so far.

The commercial real estate sector could be more challenged as many small businesses struggle with solvency. The federal rent relief program should help, but it has been slow to roll out and take-up might be limited.

The Province has rolled out roughly $2 bln in support measures (plus various tax deferrals). BMO Economics estimates that the deficit could approach $3 bln in FY20/21 (under 4% of GDP), but the Province has hinted at a deeper shortfall.

Questions from the Government Finance Conference

The Province of Manitoba

Q: Will capital spending be pushed out to make room in the borrowing program? Pulled forward to stimulate the economy? Or remain status quo?

A: "The province is increasing infrastructure investments by an additional $500 million as part of an economic stimulus package to help restart Manitoba’s economy in the wake of the COVID-19 pandemic. The $500-million investment through the Manitoba Restart Program announced on May 7, 2020 will expand on the significant already-planned infrastructure investments of $3 billion over the next two years."

Q: Manitoba is typically viewed as the most steady province through periods of weakness, given the diverse industry base and low growth volatility. Does that apply this time around, or do you think all provinces have been hit more uniformly?

A: "Similar to other jurisdictions, the closing of the provincial economy during the early phase of the pandemic will have considerable impacts on Manitoba’s fiscal outlook. However, Manitoba has been fortunate to experience a relatively low number of COVID cases which has allowed us to re-open parts of our economy as of late-May. According to Statistics Canada, Manitoba continued to be the most stable provincial economy in Canada heading into 2020 and we remain optimistic that the post-COVID recovery will be sustained into 2021."

Ontario

The Ontario economy is expected to contract 6.0% this year, in-line with the decline expected nationally.

The province entered the downturn in a position of strength, but struggled with a steeper COVID curve early on versus B.C and Atlantic Canada. As a result, the province has been somewhat behind others in re-opening its economy. The second stage, as of May 19th, opened select workplaces and street-level retail, with more services outside the GTA opening June 12.

The unemployment rate has risen sharply, to 13.6% in May, but is expected to remain slightly below national average, at 9.3% for all of 2020, versus 9.5% for Canada.

Housing market activity has paused, with new listings and sales both falling more than 50% y/y in the GTA in May. As a result, prices have held steady so far. As the market re-opens, demand will have to spring back enough to absorb pent-up listings. That should be the case in the near term, with higher risk of oversupply in the condo market.

The Province has rolled out roughly $8 bln in support measures (plus various tax deferrals), including a one-time child payment and electricity cost relief. BMO Economics estimates that the deficit could be around $21.5 bln in FY20/21 (2.4% of GDP), but a fiscal update from the Province is pending and the result could be meaningfully deeper.

Questions from the Government Finance Conference

The Province of Ontario

Q: The BoC has actively supported provincial issuers through their PMMP initially and then via the PBPP, are you comfortable with how the market has responded and do you still have any current concerns about the way the market is behaving?

A: "The PMMP and the PBPP have helped bring a sense of normalcy back into the market. The more mature program from the Bank of Canada, the PMMP, made its first purchase of Ontario Treasury Bills on March 25^th and has been, in our opinion, incredibly successful. Every Wednesday, Ontario currently auctions $1.05 billion worth of Treasury Bills; thanks to the PMMP, spreads on Ontario’s 3-month, 6-month and 1-year Treasury Bills are back to roughly where they were pre-COVID-19. Additionally, we have increased borrowing authority for the Treasury Bill program from $39 billion to $46 billion. The PBPP is more recent, having started on May 7^th, and is a secondary market program, not for primary issuance like the PMMP. We feel the two programs have helped infuse liquidity into the Canadian provincial market."

Q: Post the 2008-09 financial crisis Ontario took an active approach to extend the term of its debt, do you anticipate this trend to continue? Would you consider issuing bonds in terms longer than 30 years?

A: "Ontario’s issuance is responsive to investor demand, and given market stresses associated with COVID-19, the average term of borrowing may be shorter than in previous years. Going back to the beginning of 2010-11, to lock in low interest rates and lower refinancing risks, Ontario has issued $93.3 billion of bonds 30 years or longer, or approximately one-quarter of total debt, including $12.5 billion in 2019-20, and $0.6 billion so far this fiscal year. We will look at ultra-longs, but our preference is to focus on 30 year issuance in order to provide large, liquid benchmark bonds that trade well in the secondary market."

Quebec

The Quebec economy is expected to contract 6.3% this year, slightly worse than the decline expected nationally given more widespread shutdowns early in the pandemic. For example, construction and manufacturing were aggressively shut during April, and housing starts fell to zero. The province began to re-open in early-May, though the Montreal region was delayed by COVID cases.

The province entered the downturn in a very strong position, but struggled with a steeper COVID curve early on versus B.C and Atlantic Canada.

The unemployment rate jumped above 17% in April, but pulled back below 14% in May as lockdowns eased. The full-year average is expected at 9.8%.

Housing market activity has paused, with new listings and sales both falling sharply in the Montreal area from a year ago in May. As a result, prices have held steady so far. But, this was arguably the hottest market in Canada heading into the downturn.

The commercial real estate sector could be more challenged as many small businesses struggle with solvency. The federal rent relief program should help, but it has been slow to roll out and take-up might be limited.

The Province has rolled out roughly $8 bln in support measures (plus various tax deferrals). BMO Economics estimates that the deficit could be around $13 bln in FY20/21 (2.7% of GDP), but a fiscal update from the Province is pending.

Questions from the Government Finance Conference

The Province of Quebec

Q: Are you comfortable with your funded position and how do you see your issuance going forward?

A: "We are very comfortable with the funding we made so far this fiscal year. As of June 4, 2020 Québec has borrowed a total of 11.3 billion CAD on the long-term market with a mix of domestic and international issuance. So far this fiscal year we only did benchmark issues which is really our main focus. We did a total of 11 benchmark issues in Canada – 2 with a 5-year maturity, 5 with a 10-year maturity and 4 with a 30-year maturity. On the international markets, we issued a total of 4.5 billion dollars or 40% of the amount borrowed with one 1.6-billion 5-year euro issue and one 1.5-billion 10-year US dollar issue. Going forward, we will still focus on benchmarks in Canadian dollars and will do more international funding. Québec’s Ministry of Finance will table its Supplementary Budget Statement on June 19, 2020 and we will then have an update on Québec’s borrowing needs for the remainder of 2020-2021."

Q: How important is the international funding market given increased borrowing requirements?

A: "International funding has always been very important for Québec. On average, issuance outside of Canada represents about 20% of our borrowings. Our strategy has always been to aim for one benchmark a year in US dollars and in euros. With the increased borrowing requirements for the years to come, we will need to increase our international funding since we do not want to only rely on the domestic market. We will continue to focus on benchmarks in dollars and euros and it means we will need to issue more than once a year in those currencies. We will also look at other currencies in which we have been active in the last few years, namely $A, GBP, etc. in public format."

New Brunswick

The New Brunswick economy is expected to contract 3.2% this year, much milder than the decline expected nationally. While COVID-related lockdowns will still weigh heavily, the pandemic curve has been much flatter in Atlantic Canada, and re-opening has been earlier than in the larger provinces.

The unemployment rate still rose sharply above 13% in April before dipping in May, and is expected to average just under 10% for all of 2020.

Housing market activity has stalled given restrictions in showings, but construction activity has largely been able to go ahead.

While the province has seen a recent boost in population, demographic flows will be a medium-term issue post-COVID, potentially dampening a previous support.

The Province has rolled out roughly $150 mln in support measures. BMO Economics estimates that the deficit could be around $350 mln in FY20/21 (0.9% of GDP).

Questions from the Government Finance Conference

The Province of New Brunswick

Q: New Brunswick and the Atlantic Provinces in general have done an exceptional job at containing the spread of COVID-19, with some provinces now weeks past their last reported active case. Do you anticipate that you’ll recover faster than other parts of the country as lockdown restrictions start to lift?

A: "While the opening has been good news for the province and there are opportunities to start recovery efforts earlier than elsewhere, meaningful gains will only be realized based on the recovery elsewhere. NB is a major exporter of petroleum, forestry and food products and will need to see demand increase for these products to see significant gains in economic activity. Domestically, social distancing measures and business and consumer confidence will also take some time to recover and support local economic activity. Over the medium to longer term, our success in managing COVID-19 may create economic development opportunities for businesses looking to diversify their operations across multiple locations. The province has a proven track record in the export market, has close proximity to large population centres and can be positioned as a safe place to operate."

Q: Which sectors of your economy have been hardest hit and how do you anticipate their recovery to be?

A: "The accommodation and food, and the retail trade sectors have seen the most immediate impact. As with the rest of Canada, both sectors saw steep declines in sales and employment levels in March. The Saint John refinery is operating at less than full production currently. However, the year/year decline may not be as pronounced as it has operated at less that normal operating capacity since recovering from a production interruption. The forest sector has some challenges as demand has fallen off recently, but up to this point has been operating effectively. A weak restaurant industry is having an impact on the food manufacturing sector. McCains has indicated that the majority of their global sales is in the food service industry. This will reduce demand for product from NB potato growers this year and may have an impact in 2021."

Nova Scotia

The Nova Scotia economy is expected to contract 3.8% this year, much milder than the decline expected nationally. While COVID-related lockdowns will still weigh heavily, the pandemic curve has been much flatter in Atlantic Canada. That said, businesses have been slow to re-open with the CFIB reporting just 29% fully operating by late-May.

The unemployment rate has risen sharply, and is expected to average 10.2% for all of 2020, versus 9.5% for Canada.

Resale housing market activity has slowed sharply, with new listings and sales both falling sharply in April. As a result, prices have held steady. Residential construction activity has gone ahead relatively unscathed.

The commercial real estate sector could be more challenged as many small businesses struggle with solvency. The federal rent relief program should help, but it has been slow to roll out and take-up might be limited.

The Province has rolled out roughly $250 mln in support measures (plus various tax deferrals). BMO Economics estimates that the deficit could be around $500 mln in FY20/21 (1.1% of GDP), which would be much shallower than most other provinces.

Questions from the Government Finance Conference

The Province of Nova Scotia

Q: Population growth was a major economic support in recent years. Are demographic flows post-COVID a concern?

A: "The impacts of COVID-19 on border closures are expected to have near-term impacts on international and interprovincial migration. After June 5, as the Nova Scotian economy opens up further, we anticipate that provincial immigration recruitment will continue to strengthen."

Q: Will capital spending be pushed out to make room in the borrowing program? Pulled forward to stimulate the economy? Or remain status quo?

A: "The Province has announced additional capital expenditures of $230 million in the near term, with an emphasis on smaller projects that can be moved quickly to absorb employment declines in the local construction industry. The Province of Nova Scotia is trying to pull forward these capital expenditures but it may be difficult under these circumstances."

Prince Edward Island

The PEI economy is expected to contract 3.0% this year, much milder than the decline expected nationally. Keep in mind that the province was enjoying a quiet boom before COVID broke out, leading the country in 2019.

While COVID-related lockdowns will still weigh heavily, the pandemic curve has been much flatter given the small and closed-in nature of the province. Re-opening has been quicker than most other provinces through late-May.

The unemployment rate has still risen sharply, and is expected to average 10.2% for all of 2020, versus 9.5% for Canada.

That said, tourism and seasonal visitors during the summer months are major drivers of local economic activity, and both of those sources remain in serious doubt as we head into the peak of the 2020 season. Additionally, an influx of international immigrants has boosted housing demand in recent years, and that looks to be at risk should post-COVID inflows run lower.

BMO Economics estimates that the provincial deficit could be around $50 mln in FY20/21 (less than 1% of GDP), which would be much shallower than most other provinces.

Questions from the Government Finance Conference

The Province of Prince Edward Island

Q: Can you update the status of the fishing industry?

A: "The Federal government has announced more than half a billion dollars to support the fishing industry during the COVID-19 pandemic, representing the largest expenditure on the industry since the cod moratorium bailout. The support to the sector will help during this downturn. It's too early to say if it will be enough to protect the sector, and the future depends on the successful restart of the economy."

Q: The Province has just come off a record year for growth in many sectors, where do you anticipate the actions taken in light of COVID-19 will have the biggest impacts?

A: "Restrictions on travel and large group activities will impact the tourism sector which accounts for 3% of GDP and 6% of labour on PEI—highest among the provinces. The rapid and extraordinary financial support by federal and provincial governments will help people and businesses survive this event. The future depends on the successful restart of the economy."

Newfoundland & Labrador

The Newfoundland & Labrador economy is expected to contract 7.5% this year, deeper than the decline expected nationally.

The province was already in a challenged position pre-COVID, and current shutdowns and the decline in oil prices have exacerbated the headwinds. Despite being relatively sheltered and having a flat COVID curve, the province remains more shut-down than most. The CFIB reports that just 20% of small businesses were fully open as of late-May, the lowest share in Canada.

The unemployment rate jumped to 16.3% in May, and is expected to average 12.6% for all of 2020, the highest in Canada.

BMO Economics estimates that the provincial deficit could top $2 bln in FY20/21 (more than 6% of GDP), which would be back in the range seen during the 2014-2016 oil price shock.

Questions from the Government Finance Conference

The Province of Newfoundland & Labrador

Q: Newfoundland and Labrador hasn’t received an equalization payment since 2008, have there been any discussions with the federal government to reassess distribution?

A: "The Province of Newfoundland and Labrador (NL) is in regular contact with the federal government on a range of fiscal matters and is a full participant in federal-provincial-territorial discussions on equalization including potential modifications to benefit NL. Equalization is designed to address variations in provincial revenue raising capacity per capita, but unfortunately for NL it currently does not account for differences in expenditure needs or cost variations across the country. NL is also working with the federal government towards improvements to the Fiscal Stabilization Program – a program which provides assistance to provinces experiencing significant declines in revenue – to make it more responsive for provinces like NL."

Q: The drop in oil revenues has added a double whammy to the challenges facing the economy on the back of the COVID-19 challenges. How do you see that playing out over the next couple of years?

A: "There is a lot of uncertainty regarding the COVID-19 challenges, but the impacts will likely fade over the next couple of years as the pandemic subsides and/or a vaccine becomes widely available. As a result, we believe many sectors will eventually go back to normal, even if it is a “new” normal."