Liberal leader Jean Charest won a snap provincial election on Dec. 8, after campaigning for the majority government he said that Quebec needed to weather the looming economic storm. Building on his nautical metaphor, Charest had warned of dire consequences unless the province had one skipper at the helm rather than the three pairs of hands vying for control as a result of Quebec’s 20-month experiment in minority government.

But maybe the skeptics, who had charged that Charest was merely capitalizing on the collapse of Mario Dumont’s Action démocratique du Québec political party in order to secure a third mandate, got it right after all. So far, Charest hasn’t had to make the kind of hard decisions he said the province would be facing as a result of the slowdown.

Charest’s first mate, Finance Minister Monique Jérôme-Forget, said in her mid-January financial statement that she remains hopeful Quebec can avoid running aground on the shoals of a recession. “Let’s wait and see; let’s not panic now,” she said, noting that the economic situation is evolving “very quickly.”

Jérôme-Forget is banking on the federal government’s budget to fill her sails and she wants Ottawa to smooth the waters ahead by restoring proposed cuts to Quebec’s equalization payments.

Jérôme-Forget also hopes U.S. President Barack Obama’s US$825-billion economic stimulus package will pull Quebec along in its wake, boosting exports to the U.S. The world is also looking to Obama to help fix the international financial system, after U.S. failings triggered the current slowdown.

Jérôme-Forget believes Quebec’s growth will resume by late 2009 or early 2010.

Somewhat fortuitously, Quebec had begun applying its own fiscal stimulus package in 2007, not to offset a possible recession but in response to the collapse of a highway overpass that had killed five. The inquiry into that collapse had pointed out that Quebec’s highway infrastructure was crumbling and sorely in need of major investment.

The initial 15-year plan, budgeted at $30 billion over the first six years, has grown to a $72-billion commitment over 10 years, including Hydro-Québec’s $30-billion investment program for new power dams, the purchase of wind-generated energy and new transmission facilities.

Jérôme-Forget’s January financial statement said the province is injecting $6.9 billion more into its economy in 2009 — including $4.2 billion more for infrastructure. But only $400 million of the new infrastructure credits will be spent this fiscal year. Overall, existing plans call for $13.9 billion in spending in fiscal 2008-09: $8.9 billion for roads, transit, waterworks, hospitals, schools, public housing, jails and other public-sector works; and $5 billion in investments by Hydro-Québec. Quebec has also budgeted $13.8 billion for infrastructure spending in the 2009-10 fiscal year.

All that spending appears to have had some impact. Quebec’s gross domestic product grew in the first nine months of 2008 by 1.1%, making Jérôme-Forget’s forecast of 0.8% growth for the full year plausible.

Royal Bank of Canada foresees 0.6% growth in Quebec for 2008, zero growth for 2009 and a 2.3% rebound in 2010, compared with Ontario’s contractions of 0.2% in 2008 and 1.4% in 2009 and a 2.5% recovery in 2010. The relative optimism of RBC’s 2009 forecast (predicting no actual decline) is based on public-sector spending on infrastructure, including Hydro-Québec’s investments.

Before the election, Jérôme-Forget had predicted growth of 0.6% in 2009. In January, she noted the consensus among forecasters is that Quebec’s growth would contract by 0.5%. But she also pointed out that the consensus was for much weaker growth in 2008 — as low as 0.2% — as well.

Desjardins Group estimates 0.7% growth in Quebec’s GDP in 2008, between zero and -1% for 2009 and 1.6% growth in 2010. Desjardins says the province is in a “slight recession,” with negative numbers in the final quarter of 2008 and the first quarter of 2009.

But this decline is nothing like the 1982 recession, when unemployment in the province rose to 15.8%, or the 1991 contraction, when the jobless rate rose to 14.2%.

In November, Quebec’s jobless rate or 7.1% matched Ontario’s for the first time in 30 years, and Desjardins doesn’t see Quebec’s unemployment rate deteriorating past 8.5% in 2009. That’s due to a number of factors, including retiring boomers and the structure of the Quebec economy.

Unemployment in Quebec at the end of 2008 was 7.3%, remaining historically low for the province. But with the slowdown, Bank of Montreal estimates, unemployment will rise to 8% this year — matching the 2006 level — and to 8.2% in 2010.

@page_break@Unlike Ontario, Quebec has no auto plants. But it does have a healthy aerospace industry, with a two-year backlog on delivery of aircraft, engines and components. And more orders are on the way.

And Jérôme-Forget hasn’t played all her cards yet. Her budget will come in March, with Obama as U.S. president and after the Canadian federal budget. She has indicated she could add stimulative measures to complement the efforts of both Obama and our feds.

Jérôme-Forget remains confident that she can balance the 2008-09 budget: she also aims to balance the 2009-10 budget, thanks to a reserve generated by shifting Quebec’s $5.8-billion accumulated deficit to long-term debt. In the minority legislature, the two Opposition parties had balked at that change, charging that the minister was trying to hide the accumulated deficit and accusing her of practising “Enron economics.” But during the election campaign, Parti Québécois leader Pauline Marois admitted that the change, which meant the province would acknowledge the shortfall, made sense. The reserve is estimated at $2.3 billion.

In November, when the election was called, Jérôme-Forget said she would draw $1.2 billion from the reserve to balance her 2008-09 budget and to make a $132-million contribution to Quebec’s Generations Fund, created to offset the province’s growing debt. The remaining $1.1 billion would balance the 2009-10 budget.

Jérôme-Forget insists that she is not looking at Quebec’s economy with rose-coloured glasses, admitting a recession is “a possibility” but adding that she has an additional cushion, in the form of a planned $822-million contribution to the Generations Fund, most of it from Hydro-Québec and private companies that pay water rights.

Publicly-owned Hydro-Québec is also a cash cow for the government. Quebec claims 75% of the utility’s net income, which will amount to a $2.3 billion dividend in 2010.

The other powerhouse in Quebec’s public sector is the Caisse de dépôt et placement du Québec, Canada’s largest institutional investor, with assets under management of $155 billion as of Dec. 31, 2007. Jérôme-Forget admits the Caisse, like other pension funds, suffered a loss in 2008. The Caisse has offered assurances that those paper losses will not mean higher contributions to the Quebec pension plan, the province’s no-fault car insurance plan or other pension and insurance funds under its management.

But in total, the Caisse, other public-sector entities and two Quebec-based financial institutions, National Bank Financial Group and Desjardins, hold half of the $32.8 billion in non-bank asset-backed commercial paper sold in Canada.

Quebec’s manufacturing sector is also experiencing wrenching change. The Internet has finally caught up to its newsprint sector, as newspapers are folding or growing thinner with the decline of advertising. AbitibiBowater Inc.’s Donnacona mill made paper for catalogues, but people now consult catalogues online. In addition, most textile and clothing jobs have moved offshore.

Despite job losses in forestry and manufacturing, job creation — mostly in the service sector — has picked up much of the slack.

Looking ahead, Quebec could even become an oil and gas producer. Oil has been found in the Gaspé peninsula and the geology offshore in the Gulf of St. Lawrence is promising. Several natural gas delineation wells have been drilled to identify the economic potential of shale gas found near Trois-Rivières. IE