P.E.I.'s economic boom stalled in 2022

After leading all Canada's provinces in gross domestic product (GDP) growth in four of the five previous years, P.E.I.'s economic growth slipped below the national average in 2022.

Growth across the economy on the Island was just 2.9 per cent, while growth nationally was 3.6 per cent.

The COVID-19 pandemic wreaked havoc across Canada, but even when P.E.I.'s GDP was down in 2020, it still held an edge over that of other provinces.

Population growth has been driving economic growth on the Island, said UPEI economics Prof. George Jia, but even though the province saw record growth in its population in 2022, other factors held it back.

"Fiona is, obviously, one of the major causes," said Jia. "Essentially the Island was shut down for about two or three weeks."

Being hit by a natural disaster doesn't always mean an economic slowdown. Often recovery and repair work after a disaster will actually drive up GDP, said Jia, but that was not the case on Prince Edward Island after the post-tropical storm hit over the last weekend of September 2022.

"With the Island, everything has to be shipped here," said Jia. "As well, we do have a supply chain [slowdown] that is still going on."

Because that recovery period is being stretched out, so is the economic activity associated with it. Increased activity in the last months of 2022 did not make up for the losses in the weeks after Sept. 24.

Lower consumption, lower investment

Inflation also held the economy back, said Jia.

P.E.I. had the highest inflation rate in the country in 2022, and that has knock-on effects. Inflation means the same money won't buy the same amount of stuff. Under financial pressure because wages were not keeping up, Islanders curtailed their spending.

Retail gross domestic product, which was up 9.6 per cent in 2021, increased only 1.4 per cent last year.

Inflation has an impact on businesses as well, leaving them squeezed by growing costs for the materials they need in order to operate.

"Consumers are going to lower their consumption, firms are actually going to be lowering their investment," said Jia.

The energy sector was a major driver of inflation on P.E.I. last year, and that is particularly problematic in a place where so much has to be shipped in. The rising cost of energy means a higher cost for transportation, a direct hit to that sector, where growth was flat in 2022.

The construction sector actually shrunk, down 3.1 per cent after 7.5 per cent growth in 2021, despite continuing demand for new housing. A factor in that would be increased energy costs, which would be folded into the cost of both creating and transporting building materials.

After running at over eight per cent for much of 2022, inflation on P.E.I. was down to 3.9 per cent this March — and energy was actually seeing deflation over March of 2022.