DIVERSIFICATION ONCE AGAIN CUSHIONS AGAINST RECESSION’S BLOW
Having withstood the peak of the initial phase of the pandemic, Manitoba’s diversified economy again looks to be in position to come out of a recession relatively unscathed. The Province’s broad industrial base helped keep its decline to just 0.2% at the height of the Global Financial Crisis (GFC).
Success containing the virus’ first wave has enabled early reopening and broadly supported labour market outcomes. Jobs in retail & wholesale trade, information, culture & recreation, and accommodation & food services—the sectors most adversely impacted by lockdowns—took a significant hit but account for small employment share relative to other provinces. Meanwhile, the rise to date in full-time, high-wage finance & insurance and professional, scientific & technical services jobs bodes well for a recovery in related incomes.
Data released to date for the agriculture sector suggest a soft start to the year, but the months ahead may yield better results. Excluding direct payments, farm cash receipts were down 6.8% y/y in H1-2020, second-worst among the provinces. Yet prices for cattle, corn, soybeans, and canola—all key products in the Keystone Province—have all seen firmer prices in more recent months amid tight world market supplies, and farmers are reporting above-average harvests due to favourable weather. Sino-Canadian diplomatic tensions remain a challenge—canola and soybean shipments have slowed to a trickle since 2018, though they have seen improvement this year amid lockdown removal and broadly rising Chinese buying.
For trade, Manitoba has been held back by the transportation equipment manufacturing industry as in Ontario. Related shipments—though improving since the summer—appear to have been hit hard by early-year auto sector shutdowns, dominating gains in agriculture and food manufacturing. Aerospace prospects face a particularly uncertain outlook given the near-stop of the travel and airline industries. As well, Manitoba’s well-documented interprovincial export relationships are unlikely to provide much respite from this downturn given the widespread nature of the pandemic, though a solid rebound can reasonably be expected as demand recovers.
Manitoba recently recorded an unexpected $5 mn fiscal surplus in FY20—its first since before the GFC. An income tax revenue windfall—attributed to pre-pandemic household income gains—were the primary driver of the result. Manitoba also kept program spending growth to an annual mean of just 2.7% over FY16–20, the third-lowest rate of any Province over that period and its second-slowest pace in a five-year span since the 1990’s (chart).
Last year’s black ink puts the Province’s balance sheet in a stronger-than-anticipated position entering the pandemic, but fiscal pressures will nonetheless be significant over the medium term. This year, Manitoba expects to run a record $2.9 bn (4% of nominal GDP) shortfall and carry an all-time high net debt burden of 37% of output. Those figures reflect expectations of an historic 8% decline in total revenue and a sizeable 8% jump in total expenditures. Still, the generous spending package—including funds for medical supplies, infrastructure outlays, wage subsidies for students, and workforce participation incentives—may bolster the recovery so long as second wave containment efforts are successful.
Sources for chart and table: Scotiabank Economics, Statistics Canada, CMHC, MB Finance.
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