Thank you, Madam Speaker. Madam Speaker, a lot of my colleagues have already spoken about what they feel is lacking in this budget, and I think I'm pretty vocal about what I also think. So instead I wanted to focus today on the economic outlook of the Northwest Territories going forward.
The Northwest Territories economy has shaken off the effects of the COVID-19 pandemic. Economic activity, output, and employment expanded throughout 2021 and 2022, recovering much of the economic loss that occurred in 2020. Labour markets have performed particularly well with resident employment and the employment rate rising to record highs. This has helped support wages and incomes, which in turn has boosted consumer spending and retail sales. Diamond production has also returned to pre-pandemic levels and exploration spending intentions are up. However, the recovery from the pandemic returns the economy to its pre-pandemic path of slow decline. Maturing diamond mines, labour shortages, and a lack of economic diversification will continue to dampen economic growth.
These challenges are heightened by high inflation and higher interest rates. Most pressing is the lack of workers that is putting a brake on private sector activity, as well as the impending closure of the Diavik Diamond Mine. There are currently no other projects on the horizon large enough to fill the economic gap that will be left by the closing diamond mines.
The recent performance of the Northwest Territories economy is evaluated using the 13 Macro-Economic Policy Framework performance indicators. The Macro-Economic Policy Framework was developed in 2007 following a consultation with Northwest Territories residents that resulted in a consensus that the future economic growth should be balanced, diversified and sustainable. The Macro-Economic Policy Framework provides a comprehensive policy and planning framework to guide government spending and investment decisions that support economic development.
The framework's 13 performance indicators evaluate the economic well-being of the territory and provide an indication of the effectiveness of the GNWT's investments in developing the economy. The performance indicators compare current indicator values to their 2007 baseline levels. The year 2007 was chosen as the baseline because it is the year the economic policy framework was developed but also because it marked a period of great expansion and optimism in the Northwest Territories when the Snap Lake Diamond Mine was being built. For such a small economy, returning to this abnormally high level of economic output and activity may not be possible.
Five of the 13 indicators have improved. These include incomes, population growth, retail sales, and non-resident workers. Earnings, population, and retail trade are all higher now, and the number of fly-in/fly-out workers is lower than in 2007, which all point to favourable labour market conditions and a high quality of life. However, seven of the 13 indicators have worsened. These include real GDP, productivity, new investment, imports, wholesale trade, and resource sector services.
The indicators are all smaller now than in 2007, signalling economic decline. The employment rate is unchanged. Today and in 2007, close to three-quarters of the working age population in the NWT is employed. However, the composition of employment between industries has changed.
The Northwest Territories economy has shaken off the effects of -- oh sorry, I seem to have repeated myself.
Over the near term, the NWT labour market is expected to remain robust while a real economic output is forecast to persist at lower levels compared to pre-pandemic conditions. The real GDP is projected to shrink by 2.9 percent in 2023 after dipping by an estimated .4 percent in 2022. Declines in economic output are due to the unwinding of pandemic-related government spending that supported residents, businesses, and industry as well as lower export values because of decreased diamond production. Household spending, while still growing, is slowing down as pent-up demand from the pandemic dissipates and consumer price inflation erodes purchasing power, forcing many households to draw down savings and cut back on purchases. Investment, however, is forecast to rise by 8.2 percent in 2023 after increasing by an estimated 9.4 percent in 2022.
The Northwest Territories economy has been contracting prior to the pandemic. Despite a strong rebound in 2021, several years of decline will leave the Northwest Territories economy nearly 9 percent smaller in 2023 than in 2019, before the COVID pandemic. This is largely because of low investment and a significant drop in exports. Household and government spending are expected to be higher than before the pandemic.
Resident employment is projected to increase by 1.2 percent in 2023 after rising by 5.5 percent, or 1,300 people in 2022. Strong employment gains lifted the territorial employment rate to 73.1 percent in 2022, indicating that the NWT is nearing full employment. A robust labour market is expected to continue in the near term as job vacancies and labour shortages of skilled and unskilled workers remain high. Resident employment is projected to reach a record high of 25,200 people in 2023.
Tight labour markets will help push wages over the near term. Average weekly earnings are projected to increase 2.8 percent in 2023 after rising an estimated 2.1 percent in 2022. There is variation of average weekly earnings across communities which will affect wage growth. As well, wage growth is being outpaced by the consumer price growth.
The consumer price inflation is projected to slow this year as many of the geopolitical events that caused global supply chain disruptions and commodity price fluctuations are resolved. High inflation is eroding the purchasing power of Northwest Territories residents and exacerbating the already elevated costs of living and doing business in the North.
After a decade of low and stable prices, inflation, as measured by the Yellowknife consumer price index, increased 6.8 percent in 2022 and is further forecast to rise 3.3 percent in 2023. Consumer price growth is projected to outpace wage growth in 2023 thereby muting real wage growth for workers. Should CPI stay elevated for an extended period, and depending on reactions to inflation in other jurisdictions, the Northwest Territories comparative advantage of offering high wages and salaries may be diminished. Eventually consumer price inflation may push wages up and create further labour cost pressures on business.
Near term risks facing the Northwest Territories economic outlook are the continued disruptions to global supply chains, persistently high inflation, and decreased demand for Northwest Territories exports such as diamonds and Aurora tourism. These risks, which are driven by international factors, including China's pandemic policies and the Russian invasion of Ukraine, are expected to persist throughout 2023. This could lead to increased costs of living and doing business, lower consumer spending and investment, and reduced export values. Taken together, these could cause economic growth to decline further than currently projected.
However severe these short-term risks may be, failure to prepare for inevitable structural shifts to the Northwest Territories economy, such as the closure of the remaining diamond mines within the next decade, poses a more significant threat than the short-term economic disruptions.
Structural challenges specific to the Northwest Territories include ongoing labour shortages, a lack of economic diversification, and maturing diamond mines. These challenges pose both intermediate and long-term risks to our economy. Most pressing of these challenges is labour shortages in key Northwest Territories industries such as healthcare, construction and education, as well as the impending end of the diamond mining in the Northwest Territories, which has been the engine of private sector for the last two decades.
A persistent lack of skilled and unskilled workers will further hamper private sector activity and reduce the quality of living and working in the Northwest Territories while the expected closure of all operating diamond mines by 2030 will lead to a severely diminished NWT mining sector. Several mineral resource projects, including the Nechalacho rare earth project, are currently underway in the NWT. However, at this time there are no mining projects on the horizon large enough to fill the gap in economic output and well-paid jobs that will be left by the closure of the diamond mines.
Persistently high inflation poses a downside risk to the economic outlook because households and businesses are likely to reduce or delay purchases while prices rise. This will lead to less economic activity. Consumer spending, which supported the Northwest Territories economy throughout the pandemic, slowed in 2022 as pent-up demand dissipated and consumer prices rose by 6.8 percent. Although inflation is moderating, prolonged or rising inflation risks accelerating the slowdown in consumer spending.
High inflation has triggered several rounds of interest rate hikes by the Bank of Canada. The bank's target for the overnight rate increased by 425 basis point last year, rising from .25 percent in January of 2022 to 4.5 percent in January of this year. Higher interest rates make borrowing and investing in the NWT more expensive and increases the risk of loan defaults. This has the potential to stifle spending by households and industry.
Total investments by the private and public sector are forecast to grow by 8.2 percent in 2023 helping to soften the contraction in real output. However, should the Bank of Canada raise interest rates further, private sector capital investment may be lower than currently forecast.
The unemployment rate dipped to 5.1 percent in 2022 and the employment rate, or the share of working age residents that are employed, rose to 73.1 percent, a 4 percentage point increase from 2021 and an 8 percentage point increase from 2022 -- or sorry, 2020.
This suggests the NWT is near full employment. Tight labour markets are occurring at a time of rising job vacancies, and this has resulted in labour shortages in several industries including healthcare, construction, food services, and education. Labour shortages pose short-term and long-term risks to the economic outlook because an inability to fill vacant positions may hamper private sector activity; i.e., businesses cannot maintain or expand operations and may reduce the quality of life for Northwest Territories residents as previously available services become limited or unavailable.
Labour shortages are a chronic issue for the Northwest Territories due to the small population and is one reason for a large number of non-resident workers. Between 2008 and 2018, the number of non-resident workers fluctuated between 5,500 and 8,500, representing between one-quarter and one-third of the Northwest Territories workforce. These jobs including seasonal, rotational, temporary, and special projects that fill gaps that are not met by the resident workforce. Total aggregate earnings paid to non-resident workers ranged from $275 million to $440 million a year between 2008 and 2018, representing close to one-fifth of all employment income generated in the territory. This employment income earned in the territory by non-residents represents lost income that could have been spent in our economy.
One contributing factor to chronic labour shortages is the outsized footprint of the government in the economy. Government administration at all level - federal, territorial, municipal and Indigenous - is the largest industry in the Northwest Territories, generating over a fifth of the economic output. It is the largest employer, employing close to 6,500 Northwest Territories residents, or a third of all NWT employees. Public administration includes courts, policing services, correction services, firefighting, defense and government administrative work but excludes the health, social assistance, and education sectors. The public sector typically offers pay packages that small and medium-sized businesses in the NWT cannot compete with, and this may be worsening staff shortages in the private sector.
For the first time, there are now more residents employed in the public sector than in the private sector. This significant and concerning development occurred during the pandemic and continues to persist. If the composition of the employment does not reserve, there is a risk that the NWT economy will become increasingly dependent on the government leading to a hollowing out of our private sector.
Aging diamond mines are a significant risk to the economic outlook of the NWT. Diamond mining is a primary driver of our economy but currently producing mines are set to end in 2030 as stated. The Diavik Diamond Mine is scheduled to close first, in 2025, followed by the Ekati Mine in 2029, and Gahcho Kue in 2030. Ekati resumed production in January of 2021 and could operate for an additional decade if underwater mining is successful and the Sable Deep, Fox Deep, and Point Lake Deep kimberlite expansions go ahead. Decisions to expand existing diamond mines and develop new kimberlite pipes will depend on a range of economic and financial factors, including global, capital, credit conditions, consumer demand, and rough diamond prices.
Diamond values and production have recovered from steep declines in 2020 caused by weak consumer demand for this luxury good, the pandemic disruptions, as well, in 2022 Northwest Territories diamond shipments were valued at $17.8 million, a 17.9 percent increase from 2021, due to the widening spread between prices for rough and polished diamonds, and a 42 percent rebound in the rough diamond prices for the last two years.
Madam Speaker, I think I actually have way too much stuff here to talk about, so I am going to stop there with this. But I did want to say if any of my words here sound familiar, they can be found attached to the Minister of ITI's address on the budget. And the reason that I chose to read this, and unfortunately did not get all the way through the economic forecast -- and I thank ITI for all their work on it -- was that I'm really concerned to see this shift in our economy to the public sector. And I have actually heard in this House almost a sense of pride or of such for keeping that sector going and in fact growing it during the pandemic.
For me, we had a very missed opportunity when it came to the pandemic. At that time, the federal government was quite flexible. They were open to new ideas. They were trying to think creatively. And, really, they just wanted us to come up to them with solutions. And I really think that rather than taking this time to really re-evaluate and come up with some new thinking, we just kept with the status quo and we just kept doing things the same way. And now that that money was dried up and we didn't use it to be innovative or to make any changes, we're now in the exact same boat that we were prior to that. All that did was offset the time for our economy to fail, you know, from that period of time until much later.
I am encouraged by what we have heard from the diamond mines and that perhaps there is an expansion to their timelines. However, that is not anything that we can rely on as a government. So where I want to go with this is that I would hope that I can encourage Cabinet and departmental people looking at government renewal to really look at the public sector and start evaluating job descriptions better. Look at the people that come to me and tell me that they only really work about 50 percent of the time and should they try to take on more work, they are stopped by union processes, etcetera. So I really think that given the state that we're at, now is the time to make some risky moves. We have nothing to lose, Madam Speaker. We're going to fail. We're at that stage, at that point. So I just want to urge my Cabinet colleagues to get creative, to start thinking about ways to diversify. Let's look into cold climate storage for computer systems. Estonia, when I was at COP, is doing that kind of work where they use their climate to host a bunch of servers. We could be doing things like that. We should definitely be supporting the agriculture sector after everything that we heard at our food security panel, which I would encourage all members of the public to watch. It's on the Legislative Assembly's website and social media pages. Really, I think that could be our key way to solving our problems here, not only from the supply chain perspective but also then from an employment perspective. As well as mental health and that grounding. You know, there is literally a mental health technique about -- and it is called grounding -- where you go outside, you take off shoes and you stand on the ground. And as human beings, we become very disconnected from nature and the earth, and I feel like this is a way that could provide benefits in many of our departments, not just from a food supply perspective.
So I'm going to leave it there, Madam Speaker. I want to thank everyone for indulging me and listening to the very dry economic forecast and not so hopeful, I guess. But, you know, I'm looking forward to a new Assembly and a new term and some new ideas coming in and hopefully we're going to be able to turn this economy around, Madam Speaker. Thank you.
