Tepid growth on tap for Manitoba

Manitoba may have weathered the recessionary storm better than most provinces in 2009, but that doesn’t mean its economy will be shooting out the lights in 2010, experts warn.

That’s the price paid for diversity and the absence of a defining sector: the lows don’t get too low and the highs don’t get too high. In fact, most prognosticators are expecting Manitoba’s economy to churn out real gross domestic product growth of between 2% and 2.5% this year, which is a couple of ticks lower than the national average.

Among the Big Six banks, Royal Bank of Canada is the most bullish on the province’s prospects, with a forecast of 3% real GDP growth this year, trailing only Saskatchewan (3.9%) and British Columbia (3.2%). Canadian Imperial Bank of Commerce is at the opposite end of the spectrum, projecting GDP growth of 2%, tied for sixth in the country. The remaining big banks predict 2.1% (Toronto-Dominion Bank), 2.3% (National Bank of Canada), 2.4% (Bank of Montreal) and 2.6% (Bank of Nova Scotia).

John McCallum, a finance professor at the I.H. Asper School of Business at the University of Manitoba in Winnipeg, says there’s no question this year will be better than 2009 for Manitoba — but job creation will continue to be an anvil around the province’s neck. A lack of job growth will put a “real hole” in government revenue, he says, as taxes won’t cover the higher expenses required to stimulate the economy and pay for social programs.

Compounding the situation, McCallum adds, is Manitoba’s dependence on federal transfer payments, which make up 36% of the provincial budget. “The process of Ottawa extricating itself from a giant deficit,” he says, “will inevitably be at the greatest cost to those provinces that are most dependent on Ottawa for money.”

McCallum says the real trouble began in the autumn of 2008, when the economy started its precipitous decline. Since then, Manitoba has lost almost 9,000 manufacturing jobs, or 13% of the employment in the sector.

Without a low Canadian dollar coupled with a fast-growing U.S. economy, McCallum says, manufacturing in Manitoba will “struggle” through most of 2010.

Considering that many of those lost jobs came with good pay, that doesn’t bode well for average pay packets this year. According to the most recent figures from Statistics Canada, Manitoba families with two or more people had a median after-tax income of $58,300 in 2007. That’s $3,500 less than the Canadian average of $61,800.

It looks as if the net worth of many Manitobans will be on the rise, however, as Winnipeg’s housing sector is expected to rebound this year after two years of sales declines. Canada Mortgage and Housing Corp. ’s forecast for 2010 calls for a 24.7% jump in housing starts in the city to 2,400, compared with 1,925 in 2009, and a 3.4% increase in the sale of existing homes to 11,500 vs 11,125 last year. The average price of existing homes in the Manitoba capital is expected to rise by 3.9% next year, to $214,000 from $206,000.

“We’re pretty confident a move back up is underway here in Winnipeg,” says Jeff Powell, senior market analyst for the federal housing agency’s Manitoba division in Winnipeg.

Michael Benna-roch, dean of business and economics at the University of Winnipeg, says he’s optimistic manufacturing will make a bit of a comeback this year, particularly after sagging so much in 2009. But he’s not expecting any industry to break away from the pack. “I don’t think we’re going to see many sectors hitting above their weight, especially in the first half of 2010,” he says. “Those parts of Manitoba that are dependent on exports are going to be a little slow. There’s still a fair bit of uncertainty globally.”

Nevertheless, Manitoba’s debt levels aren’t a concern, as the province’s New Democratic Party government has been running surpluses for the past decade, Bennaroch says: “We’ve been fiscally very responsible.”

Activity at airports — a leading indicator of where the economy is headed — also points to a slow 2010. Barry Rempel, president and CEO of the Winnipeg Airports Authority, says carriers are still cutting back on capacity, a development that usually means airfares will soon be on the rise. “Carriers aren’t ready to commit yet,” he says. Generally, the first thing to pick up is air freight, followed by ground transportation, Rempel says. The next step is salespeople starting to fly to visit clients in other cities; and, finally, the general public begin booking more pleasure trips.

@page_break@McCallum says retail, government services, health care, financial services and communications services should hold their own in Manitoba in 2010. The construction sector has been strong of late. There are two monster projects on the go: a new terminal building at the Winnipeg airport and the Canadian Museum For Human Rights.

The most immediate policy requirement for Premier Greg Selinger, he adds, is to focus on increasing employment.

“The very biggest thing of all is to focus on not losing any more contact than we already have with Alberta, Saskatchewan and B.C.,” McCallum says. “They are accelerating away from us. It’s a very big deal.”