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The Irving Oil refinery in Saint John

Stephen MacGillivray/The Globe and Mail

Standard & Poor's Corp. cut its outlook on New Brunswick's credit rating, shining a spotlight on the weakened financial condition in all the provinces, after a spate of stimulus spending and a recession-induced decline in revenue.

S&P shifted its outlook on New Brunswick's long-term credit to negative from stable Thursday, citing the province's deteriorating budgetary performance and rising debt burden. It kept its actual rating at double-A-minus for the time being, although that is already one of the lower ratings among all the provinces.

S&P analyst Mario Angastiniotis said the agency is concerned that if the New Brunswick economy does not recover quickly, or if there is a further dip, the province's plan to balance its budget by 2015 will be in jeopardy. "Our negative outlook is on the expectation that their plan alone is not enough to get them to a balanced position," he said.

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He noted that the province's finances may improve over the next year, and if that's the case the agency will not actually downgrade its rating, and may revert to a stable outlook. A new Progressive Conservative government, elected 10 days ago, has vowed to get the province's finances under control.

The last time S&P actually cut a provincial rating was in October of 2009, when Ontario was downgraded to double-A-minus from double-A.

Bank of Nova Scotia economist Alex Koustas said New Brunswick faces problems on a number of fronts. An expansion of petroleum refining in the province has been put on hold, its manufacturing sector has slowed, and some call centres based in the province have left for low-cost jurisdictions. "Overall, its performance is generally going to trail behind Canada, and a lot of other jurisdictions," Mr. Koustas said.

New Brunswick's deficit has ballooned partly because of the former government's decision to support the economy during the recession through heavy infrastructure spending and deep tax relief measures. The concerns in New Brunswick are reflected to varying degrees across the country, even as the federal government's relatively positive fiscal position draws praise from around the globe.

"What we're seeing is the impact of the recession's hit on government finances washing back on us now," BMO Nesbitt Burns deputy chief economist Doug Porter said. "This is not just an issue for Greece, Portugal and Ireland. It is an issue for every jurisdiction in the industrialized world."

While Canada stacks up well internationally, Mr. Porter said, some provinces came into the recession in weaker shape and have been hit harder than others. New Brunswick's deficit, as a proportion of GDP, will likely be one of the highest among the Canadian provinces over the next year, he said.

The two key issues in each province, Mr. Porter said, are the levels of debt that were built up in the past, and the projected current year budget deficits. While Quebec and Newfoundland have large levels of debt, both had "entirely manageable" deficits last year of around 1 per cent of GDP, he said.

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Ontario and New Brunswick, by contrast, have run up large deficits during the downturn, but don't have the same debt overhang of some of other provinces.

Still, Mr. Porter said, Ontario is probably in the most delicate situation, because of a high deficit, an economy tied to that of the United States and a manufacturing sector at risk from the relatively high Canadian dollar.

He noted that the situation, while bleaker than a few years ago when most provinces were in a surplus position, is still much rosier than in the early 1990s. The combined deficit of all the provinces is currently around 2 per cent of GDP, and will likely fall to about 1.5 per cent next year, he said. In 1992-1993, the combined deficit hit 3.5 per cent of GDP.

S&P's move should be taken "as a warning that the provinces have to be mindful that, as the economy recovers, they will have to rein in the fiscal stimulus that they have unleashed in recent years," he said.

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RATING THE PROVINCES

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Province.....S&P long term credit rating....outlook

Alberta..................triple-A..................stable

B.C....................... triple-A..................stable

Saskatchewan.......double-A-plus .......stable

Manitoba .............double-A ................stable

Ontario ................double-A-minus......stable

Quebec ................single-A-plus...........stable

New Brunswick.. double-A-minus.......negative

Nova Scotia..........single-A-plus ..........stable

Nfld & Lab...........single-A....................positive

PEI .......................single-A....................stable

Source: Standard & Poor's

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Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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