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Manitoba: positive fundamentals should underpin the economy through 2018

John Clinkard
Manitoba: positive fundamentals should underpin the economy through 2018

While Manitoba’s economic pulse is not racing, it is definitely beating faster approaching 2018 than it was this time last year. From an international perspective, despite a 5.9% year-to-date decline in exports to the U.S., its largest foreign market, Manitoba’s total exports during the first half of 2017 are up by 2.3%. This is more than twice the 0.9% y/y gain recorded during the comparable period in 2016.

By far the major contributor to this strengthening in foreign sales was a 42% year-to-date increase in exports to China, the province’s second largest trading partner. This increase was due, in large part, to stronger sales of agricultural products including soya beans, wheat bran and rapeseed oil. An improvement in exports to Japan (+23%), India (+83%), and Mexico (+17%) also contributed to the gain in total exports.

One of the most notable elements of the Manitoba economy is its labour market. Since July 2016 the province has added 13,400 jobs, the largest twelve-month gain in more than two years. Moreover, the bulk of these jobs are full-time work (11,800) and virtually all are in the private sector. This willingness to add staff suggests that more firms are facing increased demand for their products or services. Consistent with this improvement in hiring and despite a very strong (1.7%) population gain, Manitoba’s unemployment rate dipped to 5% in July, its lowest print since November of 2014.

Despite the strong pattern of job growth and the above-noted acceleration in the province’s population, consumer spending reflected by retail sales during the first half of the year is up by just 3.1% y/y, less than half the 6.8% y/y gain posted by the country as a whole.

During the first half, gains in sales of building materials, gasoline and car parts were partly largely offset by declines in sales of both new and used motor vehicles, home furnishings and specialty food items. Given the recent uptick in the Canadian Federation of Independent Business’ Business Barometer and sustained strong staffing intentions in August, we expect consumer spending to strengthen in the very near term.

There is little doubt that total capital spending in Manitoba will probably slow in 2017 after it posted a 7.6% gain in 2016. This increase was energized (literally) by an unsustainably large surge in spending on the Bipole III Transmission Line and the Keeyask Generating Station.

Looking forward, non-res capital expenditures should be underpinned by ongoing spending on these two projects together with an increase in investment in mining, quarrying and oil and gas extraction and in the warehousing and transportation sector.

This positive outlook is reinforced by the recent uptick in base metal prices and by the latest (2016) Fraser Institute Annual Survey of Mining Companies which ranked the province the second most attractive jurisdiction for mining investment in Canada and the sixth on the planet. Despite the slower pattern of non-res construction, the total value of building approvals year to date is up by 18.1% due to a 48% increase in residential building permits.

This strength in residential construction is indicated by a 60.7% year-to-date increase in housing starts driven by the combination of a 49% increase in single starts and an 88% rise in multiples. For the year as a whole, housing starts in the province should total in the range of 7,400 to 7,800 units compared to 5,319 in 2016.

Looking ahead to 2018, we expect the Manitoba economy to grow in the range of 2.0% to 2.5% following an estimated increase of 2.0 % in 2017. Given the uncertainty surrounding the renegotiation of the North American Free Trade Agreement, there are significant risks to this outlook. However, in our view, it is strongly supported by the province’s well balanced industrial base, the stable pattern of growth it has exhibited over the past 20 years and the prospect that both the global economy in general and the U.S. in particular will continue to expand into 2019.

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