Nova Scotia’s economic growth is expected to slow in 2009-2010 in the midst of the global recession and credit crisis.
Consumer confidence is flagging as Nova Scotians react to the declining value of their personal investments and fewer personal employment opportunities. Consumer spending is forecast to fall from an average growth rate of 4.6 per cent over the last three years.
Availability of credit plays a major role in consumer spending, and may affect consumer purchases of big ticket items like housing and automobiles. Residential investments are also anticipated to slow after several years of healthy growth.
Most of Nova Scotia exports go to the United States, so markets are likely to be soft well into 2010, tied to the recovery of the US economy.
These negative economic factors may put pressure on business profits, resulting in reduced business confidence and spending. Some major business investments in Nova Scotia have already been delayed.
Employment growth is also likely to slow, due to the economic downturn plus long term demographics.
However, Nova Scotia’s economy may benefit from the fiscal stimulus measures announced in the Government of Canada’s budget of Jan. 27.
Economists do not yet know how long and deep the United States recession will be. Some say there will be a gradual recovery starting in mid-2009, while others predict 2010 or even longer.
It will also take a considerable period of time to restore the world credit system and financial markets. Central banks including the Bank of Canada have been injecting liquidity into the markets to improve access to credit in a very tight market.
Governments around the world have adopted some aggressive fiscal policies to address the economic crisis. The Government of Canada is looking at a mixed approach with tax incentives and infrastructure spending with possible program spending cuts. The US government also has a varied stimulus package. However, Canadian exports would be affected if the United States government adopts a protectionist approach.
Consumer debt has been increasing since 2003. Nova Scotians have been spending around 102 per cent of their incomes. In the current economic climate, consumers may be inclined to reduce debt and spending – which may offset efforts to stimulate the economy.
Limited access to credit over time could also reduce the confidence of small and medium businesses owners, and increase the risk of bankruptcy. Easing credit could cause consumers and business to assume more debt.
Deflation is also a possibility given falling commodity and consumer prices. Consumers delay spending, which will cause lower tax revenues and a longer recovery period.
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