Changing places on the Prairies

Manitoba boasted growth in real gross domestic product (GDP) of 2.2% in 2015 and 1.9% in 2016, outperforming the national average in both years. By comparison, Saskatchewan suffered contractions of 1.3% and 1.2% in GDP during the same two-year period, ranking second- or third-lowest among the provinces.

These GDP figures were in stark contrast to those of the previous decade, when Saskatchewan led the provinces in economic growth, posting slightly more than 1.5% average growth from 2004 to 2014.

In many respects, this reversal of fortune is a microcosm of what’s happening on the national stage, as manufacturing-based economies, such as Ontario, Manitoba and Quebec, outperform resource-based economies, such as Alberta, Saskatchewan, and Newfoundland and Labrador.

Indeed, Saskatchewan’s major resource industries – oil and natural gas production, and potash and uranium mining – took major hits last year. Mining output (including oil and gas production) declined by 7% in 2016, largely due to a double-digit drop in oil production. Non-energy mining production also dropped, reflecting a 12% drop in potash production.

Manitoba, by contrast, saw manufacturing output grow by 2% in 2016 after posting negative 2% growth in 2015. The recovery in machinery and metal fabrication, which was partially offset by lower sales of transportation equipment and furniture, led the way.

Construction activity also contributed to Manitoba’s above-average economic growth in 2016. Major projects, including the joint Manitoba Hydro/First Nations Keeyask generating station, will contribute to a projected $12 billion in infrastructure spending over the next five years.

In Saskatchewan, capital spending has been declining for the past two years, reflecting lower oil and potash prices after an explosion of potash-related capital investment in the previous decade.

However, farmers in both Saskatchewan and Manitoba saw agricultural production, if not prices, remain high in 2016.

Production of Saskatchewan’s main crops – grains and oilseeds (wheat, canola and barley) – had been projected to increase by 9% in 2016 following a slight decline in 2015.

In fact, last year’s projected crop of 33.6 million tonnes was touted as the second-largest in Saskatchewan history, but rains and snow late in the growing season reduced crop quality and quantity.

Manitoba’s 2016 harvest projections for seven million tonnes of grains and oilseeds was also well above the long-term average, but those crops suffered the same type of weather-related damage.

Labour markets in both provinces were restrained in 2016. Job growth stumbled (Manitoba’s declined by 0.4%; Saskatchewan’s, by 0.9%), while unemployment rates (6.1% in Manitoba; 6.3% in Saskatchewan) were higher than normal yet still below the national average of 7%.

Housing starts, given the provinces’ similar populations, were similar in number (5,400 in Manitoba; 4,800 in Saskatchewan).

However, retail sales were much more robust in Manitoba (up by 4.8%) than in Saskatchewan (up by 0.7%) last year, reflecting the stronger economic growth and consumer confidence in the eastern Prairie province.

Economists expect that gap to remain, but narrow somewhat in 2017.

In forecasts for 2017, Manitoba’s economy is expected to post 2.3% growth, while Saskatchewan will continue to struggle with sluggish, albeit improved 1.7% growth.

Leading the way for Manitoba are the manufacturing and construction sectors. Employment growth is forecast to increase by 1% in 2017, following a slight contraction (0.4%) in 2016, while unemployment is forecast to moderate slightly to 5.8% from 6.1% last year.

Housing starts in Manitoba are expected to get a significant boost in 2017 to 7,100, while retail sales should increase by a healthy 4.2%.

Along with Alberta, Saskatchewan should get a boost from a modest recovery in mineral prices, particularly oil. Based on a forecast of US$56 a barrel in 2017 (vs US$43 a barrel in 2016), Saskatchewan should see modestly increased job growth (0.3%) in 2017. However, unemployment is expected to rise to 6.5% before dropping to 6% in 2018.

Although Saskatchewan’s jobless rate is expected to be less than the forecast national unemployment rate of 6.9% in 2017, Saskatchewan’s rate is a far cry from the 3.8% rate that prevailed in 2014. Other signs of Saskatchewan’s nascent economic recovery can be seen in the anticipated increase in housing starts (to 4,900) and retail sales (by 2.6%), but construction activity and capital spending are not expected to recover until 2018.

Fiscally speaking, the two provinces are both running billion-dollar deficits – one according to plan; the other by accident.

Last May, Manitoba’s newly elected Progressive Conservative government presented its first budget, which called for budget deficits stretching over the next eight years. That’s five years longer than projected in the 2015 budget presented by the previous NDP government of Greg Selinger.

In contrast, the newly re-elected Saskatchewan Party government issued its budget last June, calling for a $434-million deficit for 2016-17, then returning to balance in 2017-18.

However, the steady deterioration of Saskatchewan’s economy, particularly in resources revenues, forced Finance Minister Kevin Doherty to admit in November that the province was actually running a $1-billion deficit, with no real expectation of balancing the budget in 2017-18.

In that respect, at least, both provinces seem to be heading in the same direction.

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