Manitoba continues to battle for jobs

As a whole, the province’s real gross domestic product (GDP) is expected to grow at a rate that is greater than the national average this year, then fall slightly behind in 2015. This cycle would continue a long-term trend of essentially mirroring Canada’s overall economic performance.

A Royal Bank of Canada (RBC) report credits a “robust” increase in agricultural production in the province for solid growth in 2013, which offset weakness in the province’s manufacturing sector. After crop yields jumped by 50% in 2012, estimates suggest another 33% hike in 2013.

“Payback will probably occur in 2014,” says Paul Ferley, assistant chief economist at RBC. “It’s hard to see that high level of grain and oilseed production being maintained. We’re still assuming a good harvest, but nowhere near the increase we saw in 2013. We’re expecting agriculture to provide a bit of a drag on growth in 2014.”

Reports from RBC and Bank of Montreal are forecasting GDP growth of 2.3% for Manitoba in 2014. Canadian Imperial Bank of Commerce is forecasting growth of 2.2% and Toronto-Dominion Bank is calling for 2% growth.

Ferley expects Manitoba’s manufacturing output will improve by 3.5% in 2014 and by 4% in 2015, largely fuelled by the declining loonie, which he believes will end the year at about US92¢.

Other expected drivers of GDP growth this year, according to the RBC report, include the strengthening U.S. economy, which should provide a boost to Manitoba’s aerospace and transportation industries, particularly bus manufacturers.

The construction industry, which has benefited from some of the largest capital-spending projects in the province’s history in the past few years, also is forecast to perform well in 2014. Current projects include the Canadian Museum for Human Rights and the $600-million Sports Hospitality & Entertainment District gathering steam in downtown Winnipeg.

Ferley says that a steady, stable economic growth environment is a positive characteristic, vs the sharp ups and downs of some other provinces.

“Manitoba has sectors that can show a fair bit of volatility, such as agriculture,” Ferley says. “But [that’s] often offset by more stable growth in other sectors. That keeps the province on a fairly even keel. There’s a lot to be said for that.”

Next: An improving deficit
@page_break@
An improving deficit

According to the province’s most recent quarterly report, the forecast for the 2013-14 fiscal year, ending March 31, is a deficit of $485 million. That’s a $33-million improvement over the originally budgeted $518 million.

Still, John McCallum, an economics professor at the I.H. Asper School of Business at the University of Manitoba, doesn’t believe any economic magic bullet is in the works for the province. He’s particularly concerned about the continuing inability to create jobs and the resulting drag that has on economic output: “If we could just get 1% growth [in job creation], we’d have another 10,000 or 12,000 jobs.”

Private-sector employers seem reluctant to add people to the payroll unless they’re totally sure the new staff can be sustained by rising revenue. And the public sector is being squeezed because federal transfers to Manitoba aren’t what they used to be a few years ago.

Instead, McCallum says, the recently implemented 1% hike in the provincial sales tax and the broadening of the tax base is going to make Manitoba one of the most highly taxed jurisdictions in Canada.

“Heading into 2014,” he says, “we are the province with the highest rate of inflation, one of the lowest rates of wage growth and one of the slowest rates of retail sales growth. It doesn’t mean we are terrible, but it means we are close to leading Canada in four areas that aren’t so good to lead in.”

McCallum blames the global economic collapse of 2008 for the province’s inability to match the heady days in the five years preceding the crisis, when real GDP growth of between 3% and 4% was the norm for Manitoba.

“Part of the problem,” McCallum says, “is that the agricultural sector shot the lights out in 2013. And you usually regress somewhat to the mean [after that].”

Looking further ahead, continued positive agricultural returns, coupled with further improvements in the manufacturing sector, are expected to offset a slowing in the residential construction industry in 2015.

The RBC report forecasts that the provincial economy will continue to expand in 2015, with projected growth of 2.6%.

Manitoba

Population: 1,265,015

GDP 2012 ($bil.): 58.2

GDP % change: +5.6

2013-14 deficit ($mil.): 485

Estimated net debT ($bil.): 15.9

Median after-tax income, all families: $49,100

Household disposable income/capita: $26,995

Figures from latest available reports/estimates

Sources: conference board of canada;

Government reports

© 2014 Investment Executive. All rights reserved.