It’s a whole lot easier to manage an economy if Mother Nature doesn’t hand you a bill for almost $1 billion.
That’s one of the lessons learned by Manitoba’s finance minister, Stan Struthers, as he oversees the recovery from last year’s record flooding throughout the southern part of the province.
“We’ve had some real challenges in Manitoba,” Struthers says. “First and foremost is the impact of an unprecedented flood, which comes along with an unprecedented price tag.”
Struthers says that he is working with his federal counterparts to ensure that the costs of repairing the damage are shared. But even with federal aid, there is no doubt that the flood will have a significant impact on the province’s coffers and its government’s ability to support the provincial economy.
A final tally has yet to come in — it’s sitting at $815 million thus far — and, Struthers says, it’s very possible that the bill will exceed $1 billion, or roughly 8% of the province’s $13-billion annual budget.
John McCallum, a finance professor at the I.H. Asper School of Business at the University of Manitoba, says 2012 won’t be much to write home about in terms of the economy. He estimates that Manitoba’s gross domestic product grew by about 2% in 2011 and that it will do “slightly better” this year, perhaps as high as 2.3%. Job growth should rise by a similar rate, he says, to about 1% in 2012 from 0.9% in 2011.
Notes McCallum: “Manitoba is not a half-bad proxy for Canada because of the way we’re diversified.”
The rest of the economic picture for the province “isn’t terrible” he adds, but there’s nothing to indicate that GDP growth will be significant.
Consumer spending represents about 60% of Manitoba’s economy, and consumers are up to their eyebrows in debt.
The housing sector is expected to slow because of rising prices and increased credit requirements imposed by banks. And the province’s manufacturing industry, which represents about 60,000 jobs, will be hampered by the strong loonie, which continues to hover around par with the U.S. greenback.
“The good news is Canada and Manitoba are going to do a lot better than a lot of the world,” McCallum says. “But the bad news is 2% isn’t very good.”
There is little consensus on economic forecasts for Manitoba from the banks. On one hand, Royal Bank of Canada is expecting a rebound in grain production to pump up provincial real GDP by 3.2%. Bank of Nova Scotia and Bank of Montreal are in the middle of the pack — at 2.4% and 2.3%, respectively — while Toronto-Dominion Bank is the least bullish, predicting only 1.7% growth.
There are some reasons for optimism, however. For one, early forecasts indicate a very low probability of flooding this year. And, two, the increasing diversity of Manitoba’s economy should help keep the province’s economy stable.
“During the 2009 downturn, our economy didn’t suffer to the extent that most others did,” Struthers says. “That has always been a strength of ours, and that’s something we can count on for stability.”
The unemployment rate continues to be one of Manitoba’s bright spots. At 5.4% in 2011, unchanged from the previous year, it’s the second-lowest of all the provinces and well below the national average of 7.5%. The news isn’t quite as positive on the job growth front, however, as Manitoba’s 1% growth rate places it seventh in the country.
The province’s deficit is projected to hit a record $989 million for the current fiscal year but is forecast to improve to $345 million in 2012-13 and $146 million in 2013-14. A surplus of $185 million is expected for 2014-15.
Although Manitoba will never be mistaken for Alberta when it comes to oil and gas production, the Bakken oilfields, which extend into North Dakota, Montana and Saskatchewan, have been called the largest pool of light oil discovered in Western Canada in more than a half-century. A relatively small section of the deposit extends into the southwestern corner of Manitoba; after five years of investment, this corner of the pool is now producing more than 30,000 barrels of oil a day.
Last year, an estimated $1 billion was invested in the region, and that level is expected to continue or increase this year.
But even if Manitoba’s weather picture is perfect in 2012, there’s no question there are storm clouds on the economic horizon. “Everybody wants to have the standard of services that we’ve become accustomed to,” Struthers says. “People will complain if we start jacking up taxes to pay for it all. This is Manitoba — we aren’t extreme; we try to hit that middle ground with reasonable services at reasonable tax levels.”
The provincial government isn’t going to stay on the sidelines with the possibility of so much uncertainty, Struthers says. It has a number of infrastructure programs, such as the Building Manitoba Fund, that it will use to stimulate the economy and keep people working.
There also are capital plans in health care, public schools and universities, he adds: “We’re going to invest in programs and services that are important to people. We want to make sure people know that long-term, stable decisions continue to be made in Manitoba by this government.” IE