Healthy growth in the Prairies

This year, both economies are poised for healthy growth in real domestic product (GDP) amid promising outlooks for the agriculture, energy and manufacturing industries – along with consumer spending that’s trending higher.

Thanks to a precipitous drop in commodities prices – mainly oil and potash – Saskatchewan suffered back-to-back contractions in real GDP of 1% and 0.5% in 2015 and 2016, respectively, according to Toronto-based Royal Bank of Canada (RBC). However, a modest rally in oil prices helped the economy rebound to a projected 2.1% growth for 2017.

For this year, RBC forecasts that Saskatchewan will lead all provinces in economic growth, with robust real GDP growth of 2.7%.

In contrast, Manitoba has remained solidly in the middle of the pack among the provinces during the same period, posting real GDP growth of 1.3% in 2015, 2.2% in 2016 and projected growth of 2.6% in 2017.

RBC forecasts that Manitoba will continue to grow slowly but surely at 2% in 2018, slightly ahead of the national projected average of 1.9%.

The Ottawa-based Conference Board of Canada offers a less bullish outlook for both provinces, projecting real GDP growth of 1.6% in Saskatchewan in 2018, down from 2.1% in 2017; and real GDP growth of 1.3% in Manitoba in 2018, down from 2.9% in 2017.

Some economists argue that Saskatchewan’s larger economic output (real GDP of $62.5 billion vs $60.4 billion for Manitoba, according to RBC), but smaller population (1.15 million, compared with Manitoba’s 1.32 million), prove that province has the stronger economy of the two.

However, during the five years from 2011 to 2016, Manitoba had the stronger economy of the two provinces, both in terms of real GDP growth (2.3% average annually vs 1.7% for Saskatchewan) and per capita GDP growth (0.9% average annually vs Saskatchewan’s 0.2%).

Manitoba has achieved such consistent growth, in part, by manufacturing products for the export market. That industry has been bolstered in the past year by the strong U.S. economy and the low Canadian dollar.

Also contributing to Manitoba’s steady real GDP growth in recent years is construction spending, including large electricity generating and transmission projects by Manitoba Hydro. However, with one of those major projects set to wrap up this year, construction activity in the province is poised to begin trending lower.

Saskatchewan, meanwhile, relied on its non-renewable resources industry – primarily oil and potash – in 2017 to recover from economic contractions in the two previous years.

Those industries are once again expected to do most of the heavy lifting for Saskatchewan’s economy in 2018, according to RBC. Potash production is expected to build on the gains made in 2017, while oil industry activity will be sustained by slightly stronger oil prices in 2018.

In particular, the Conference Board notes that Saskatchewan will see increased oil-well drilling and capital investment in 2018.

Calgary-based Enbridge Inc.’s Line 3 crude-oil pipeline, SaskPower’s $680-million, 350-megawatt Chinook power station and new thermal oil projects should boost capital spending and employment in 2018. However, increased production in the potash industry will be partially offset by lower uranium output due to continued low prices, the Conference Board states.

Agriculture also will contribute to economic growth in both provinces this year. Statistics Canada projects Manitoba will post a 3%-4% increase in agricultural production in 2018, following a projected increase of 6% in 2017.

Saskatchewan’s agriculture industry, which was hit harder by drought than Manitoba’s in 2017, should experience a return to more normal levels of output after an estimated 3% drop in production last year.

As well, both provinces should experience employment growth and lower unemployment rates in 2018, according to RBC.

RBC forecasts that Saskatchewan’s employment will increase by 0.5% and its unemployment rate will decline to 5.7% in 2018 after posting negative job growth and a 6.2% unemployment rate in 2017.

Manitoba is expected to see job growth of 1.1% in 2018 (down from 1.6% in 2017) and a lower unemployment rate of 5.1% this year (down from 5.4% in 2017), according to RBC.

Consumer spending is expected to rise in both provinces in 2018, according to RBC. Saskatchewan is expected to post a 4.1% increase in retail sales, up from 3.8% in 2017, while sales in Manitoba are projected to jump by 4.5% this year following a 3.7% increase last year.

Housing starts in Saskatchewan are expected to remain flat this year (at 5,000 units), while Manitoba is projected to see a slight drop in housing starts to 6,300 from 7,500 in 2017.

The fiscal situation in both provinces improved slightly in 2017, with budgeted deficits coming in lower than expected by mid-year.

Manitoba reported a projected deficit of $827 million at the end of the second quarter of 2017, an improvement from the 2017-18 budget’s forecast of $840 million.

Similarly, Saskatchewan reported a projected deficit of $679 million at mid-year, which was lower than the provincial budget’s estimate of $685 million.

However, the political situation is expected to change dramatically in Saskatchewan in early 2018. In late January, the Saskatchewan Party voted to replace party leader and 10-year premier Brad Wall, who will retire, and the New Democratic Party will pick a new leader in February.

In Manitoba, where Brian Pallister’s Conservatives won a majority government in May 2016, it will be steady as she goes in 2018.