Saskatchewan’s Vibrant Economy; Manitoba Maintains Steady Pace
Interview conducted by Rachel Duran
Editor’s Note: This interview was conducted Feb. 19, 2014. For the latest information in regard to the forecast for the Canadian economy, visit www.conferenceboard.ca.
Rachel Duran: There has been a slight bump in the road since we last spoke about the forecast for the Canadian economy.
Marie-Christine Bernard: The latest Canadian forecast has the economy advancing by 2.3 percent in 2014 and 2.4 percent in 2015. We completed our forecast in early December  before the Canadian dollar declined vis-à-vis the U.S. dollar. The Canadian dollar is hovering between 90 cents and 91 cents. When we put together our forecast we didn’t think the Canadian dollar would decline below 95 cents.
There is some upside risk to our forecast with the lower currency that can help with certain segments of the manufacturing sector, certainly with profits and demand for certain products sensitive to the value of the Canadian dollar.
We are still of the view that the U.S. economy is doing well and will advance strongly by more than 3 percent in real terms. So that will help Canadian exports, which haven’t recovered very strongly since the 2008-2009 recession. There will be less fiscal drag in the United States and the overall economy will perform better. The private sector is doing well and the job market is steadily improving. These are all good factors in regards to Canadian exports mainly geared toward the U.S. market.
We will continue to see some fiscal austerity in Canada. The federal government is a year away from balancing the books. At the provincial level, things are more difficult. Weaker fiscal revenues have prevented a number of provinces from achieving a balanced budget this year; and they are going to be working toward that over the next few years, so growth coming from the public sector will be limited over the near term.
Duran: How does the weaker dollar affect the Prairie Provinces; how are these economies expected to perform?
Bernard: For Manitoba and Saskatchewan, starting with Manitoba, the province has been doing relatively well. The economy will continue to improve at a steady pace. We estimate that the economy advanced by 1.5 percent in 2013, and 1.8 percent growth is expected in 2014. For 2015, we forecast that Manitoba will lead economic growth in Canada with 3 percent.
Manitoba has a diverse economy, including the resource sector, although perhaps not as dominant as in Saskatchewan or Alberta. What is happening in the agriculture and the mining sectors can easily influence bottom line growth in Manitoba. We forecast strong growth in that province in 2015 because of the mining sector.
There have been major investments in the industry during the past few years. We expect to see production increase starting in late 2014 and throughout 2015.
In regard to the agriculture sector, the industry had a bumper crop in 2013. It is unlikely that it will be repeated in 2014 and 2015. So we will see a slight decline in the agriculture sector.
When we look at the other important sectors in Manitoba, manufacturing and construction, manufacturing has not done that well. But indicators in terms of new orders in two key industries, aerospace, and transit bus production, have been increasing. It points to improvements in the manufacturing sector going forward. That will be one of the factors leading to stronger growth in 2014.
As for the construction sector, we will see moderate growth as some of these major investments in mining come to an end this year.
Duran: What can you tell us about the economic performance of Saskatchewan?
Bernard: Saskatchewan’s economy has been more vibrant compared to Manitoba. Things are going well, but bottom line growth doesn’t reflect that at the moment. The province has been attracting workers from outside of the province. Employment has been increasing rapidly. In Saskatchewan, labor markets are very tight and there are labor shortages.
The bottom line growth is very dependent on the resource industry, whether it is in oil, potash, uranium or the agricultural sector.
In 2013, with the agricultural sector and mining industries doing so well, Saskatchewan’s economy advanced by more than 4 percent. This growth will not be repeated over the next two years. Global conditions are not looking good for the potash industry. Prices came down by 30 in 2013.
In fact, one of Saskatchewan’s major potash producers, PotashCorp, announced layoffs and production cuts at the end of 2013, which will have a big impact on bottom line growth in 2014.
If we exclude the potash industry from the GDP calculations, the economy is doing well. Despite the weakness in the potash industry, long-term prospects are good for the sector. Major producers are investing in expansion plans, and there are also some new mines being developed. So there are a lot of capital expenditures geared toward the potash industry; and the energy industry as well.
At the same time, there is a lot of risk because prices are low for potash; however, none of these companies have announced they would not move forward with their expansion plans.
There is a lot of construction activity underway, so a lot of jobs are being created in the province. When the labor markets are doing well we see strong wage growth. And the housing market has held up nicely as well.
Duran: What should companies understand in regard to the Canadian economy — you mentioned the decline in the Canadian dollar compared to the U.S. dollar?
Bernard: There are some unknowns with the dollar being lower. Generally, in this case, it should help exporters; however, trade is more integrated with the United States and other global markets. Imports are a big component of manufactured goods in Canada and with the dollar retreating it means imports will be more expensive.
So it is a bit unclear as to exactly what the gains are going to be based on the lower dollar. But, certainly they should be positive.
And, much like in the United States, we see very weak inflation in Canada. Prices have not been moving up fast. The lower dollar may push up import prices and there could be stronger inflation. That is certainly something the Bank of Canada is watching closely.
At this time there are talks of lowering interest rates to stimulate the economy. That is something to watch for. During the course of 2013, the Bank of Canada reviewed increasing interest rates at one point because the monetary policy is very accommodative. The bank has changed its discussion toward perhaps lowering interest rates.
We will have to see what happens.
Marie-Christine Bernard is the associate director, provincial forecast, for the Conference Board of Canada. She can be reached by emailing firstname.lastname@example.org. The Conference Board of Canada is the foremost independent, not-for-profit, applied research organization in Canada. Visit the organization at www.conferenceboard.ca.
Illustration by renjith krishna at Free Digital Photos.net