Although Manitoba won’t completely escape the wrath of the U.S. economic downturn, experts say, the Prairie province is relatively well positioned to weather the storm.

Long known for its well-diversified economy, the province has historically underperformed during booms but hasn’t fallen very far in busts. This characteristic has prompted some observers to muse that if the Manitoba economy had a nickname, it would be “Steady Eddie.”

With 20% of Manitoba’s exports heading south of the border — less than the national average of 25% — Manitoba can’t help but be affected by a slowdown in the U.S., says John McCallum, finance professor at the I.H. Asper School of Business at the University of Manitoba in Winnipeg and a former advisor to Michael Wilson, federal finance minister during Brian Mulroney’s Conservative governments.

Still, McCallum predicts, Canada will churn out 2% growth in gross domestic product this year, which will be slightly outpaced by Manitoba for the third consecutive year.

“They’ll go gangbusters on stimulating the U.S. economy,” he says, “and send U.S. interest rates down. That will offset some of the ‘bad news’ headlines.”

TD Bank Financial Group predicts Manitoba’s economy will grow by 2.2% this year, good for fourth in the country but trailing the three provinces to the west.

There are a number of significant factors in Manitoba’s favour, including strong commodity prices supporting its agriculture, nickel and copper industries, as well as several high-profile public construction projects that are in various stages of completion.

Then, there’s the intangible of momentum. Says McCallum: “This place has been on a roll the past three years.”

But Manitoba isn’t without its challenges. For one, it has a growing dependence on federal government transfer payments, McCallum says. That revenue, which is a crucial component in funding a wide variety of programs and services, is vulnerable. If oil prices hit the skids, it would affect Alberta’s revenue, which would probably reduce the national average for equalization payments significantly, he notes, which would in turn affect Manitoba.

“Transfer payments don’t need to get cut to hurt us; they just need to slow down,” McCallum says. “It will come out of the growth rate because there will be dollars that the government can’t spend to create economic activity. We won’t grow as fast as we could.”

There is reason for concern. McCallum thinks Manitoba is spending virtually every dollar it takes in. And if the economy slows, he says, Gary Doer’s New Democratic Party government “will have some tough spending decisions to make. It doesn’t have much cushion to absorb a slowdown.”

Spending decisions made by Manitobans will also play a crucial role in their economy’s performance this year. TD forecasts retail sales in the province will grow by 4% in 2008, good for fifth overall in Canada but down from the 5.9% average for 2003-07, which was third nationwide.

Michael Benarroch, chairman of the department of economics at the University of Winnipeg, says consumer spending will remain strong in Manitoba this year, buoyed by both provincial and federal tax relief. But Manitobans’ record and near-crippling debt loads will have a moderating affect.

“There’s a general feeling of concern among consumers,” he says. “That’s partly why there’s a slowdown in the economy.”

Barry Rempel, president and CEO of the Winnipeg Airports Authority, thinks the pending slowdown probably won’t be as bad as some people have feared — but the situation won’t be as good as others had hoped.

A city’s airport is a barometer of its economic situation, and from Rempel’s vantage point, there are a lot of positives on the horizon. For instance, James Richardson International Airport had a good year on the cargo side in 2007, with 4% growth, down slightly from a couple of years ago but considerably ahead of U.S. freight carriers, which were down 3% on a year-over-year basis.

“If companies aren’t optimistic, they don’t buy as much,” Rempel notes. “If they don’t believe they have a strong year coming, they’ll hold back on certain capital expenditures or they won’t buy as much for manufacturing products.”

On the passenger front, the airport had the second-fastest business market growth in the country. “If a business market continues to grow at an exponential rate,” Rempel says, “that tells you there’s an underlying positive fundamental in your economy.”

@page_break@The WAA reports that 2007 was a record year at Richardson International, with passenger traffic hitting an all-time high of 3.57 million — a 5.7% increase over 2006.

The WAA is also directly contributing to the provincial economy with the construction of a new terminal building, a $585-million project that is expected to open in late 2009 or early 2010. When wages and provincial sales taxes are factored in to the 7,400 person-years of employment created by the construction, the net impact on Manitoba is almost $1 billion, Rempel says.

It’s just one of several megaprojects currently underway in the province. Others include the expansion of the Red River Floodway and the construction of Manitoba Hydro’s new headquarters, a 690,000-square-foot building that will be the city’s biggest when it opens later this year.

Current infrastructure projects will help sustain the economy while it waits for the subprime crisis to pass, Rempel says: “You want to do infrastructure when things aren’t looking good, and stimulate the economy with public money when private money isn’t being invested as much as it would be in good times. It’s a natural offset.”

TD economists predict private and public capital spending in Manitoba will rise by 6.4% this year, tops in Canada, but down from the 7.7% average for the previous five years.

Alberta is projected to see the biggest drop, falling to 4.7% in 2008.

Many of the public projects, such as the Manitoba Hydro dams in the northern part of the province, have already been announced, Benarroch says. At least one other major project — the construction of a new football stadium for the Canadian Football League’s Winnipeg Blue Bombers — is a distinct possibility. Local businessman David Asper has a deal in principle to buy the team and is lobbying the province and federal government to pony up $40 million each to build a state-of-the-art stadium and retail complex.

“There’s some caution right now on the private sector’s part, even though Manitoba has done pretty well,” Benarroch says. “Even exports from manufacturers have held up fairly well because they have high-demand products.”

Housing is also in high demand, says Gregory Klump, chief economist for the Canadian Real Estate Association. He is bullish on housing across Canada, but particularly in Manitoba. He predicts the province will have the highest average price growth in Canada this year, at 7.2%. If he’s correct, it will be the first time in six years that increases in house prices have failed to make it into the double digits, but he’s not worried.

“I don’t think there will be much negative impact in Manitoba,” he says. “Interest rates will be lowered sufficiently in the U.S. and Canada to prevent a recession in either country.”

As well, Winnipeg’s housing market is “very tight,” which will prompt further price gains, says Klump, adding that lower interest rates will also buoy resale housing demand.

Manitoba’s unemployment rate, long the second-lowest in the country after Alberta’s, is forecast to be tied for third with British Columbia’s, at 4.3%, according to TD forecasts, trailing Saskatchewan and Alberta, both at 3.8%.

Although that looks good on the surface, McCallum says, the figures are misleading and the more important metric is employment growth. Manitoba almost outperformed the nation in this area in 2007 but fell just short. This has been a serious issue for four or five years, he adds. Most years, Manitoba grew its jobs by a small fraction of Canada’s overall growth, and that has reverberated throughout the economy.

“The jobs don’t get created, the earnings don’t get paid, the taxes don’t get paid on the wages, the government has less money to provide services,” McCallum says, “which means less quantity and quality of services.”

A less than vibrant job market also means many of the province’s best and brightest will search out greener pastures elsewhere. “Families would like their kids to stay here,” he says. “We’ve educated them, trained them and invested in them.”

Despite the many gloomy predictions and doomsday headlines, a significant number of Manitobans are optimistic about the future of their province. In a survey released last month, 37% of Manitobans — including 41% of Winnipeggers — predicted they would be better off financially in 12 months. Exactly 50% said they would be in the same financial situation a year from now, while only 9% felt they would be worse off.

Manitobans aged 18 to 34 were particularly optimistic about their household finances over the next year (at 53%), as were people with children in the home (47%) and households with an annual income of more than $60,000 (44%).

Benarroch isn’t concerned about inflation wreaking havoc on Manitoba’s economy. TD economists predict the consumer price index will rise 2.1% in 2008, precisely in line with its average for the previous five years.

“Inflation is still quite low,” he says, noting Manitoba’s CPI will be third-highest in the country in 2008. “But the central bank is committed to keep it right; it doesn’t want to see inflation pick up at this point.” IE