Diverse manufacturing base and smallest provincial deficit

WINNIPEG, Jan. 28 /CNW/ - A diverse manufacturing base and strong personal and government balance sheets will see Manitoba's economy continue to deliver solid economic growth, finds a new report from CIBC World Markets Inc.

"Manitoba escaped the recession relatively unscathed, tabling a fourth straight year of above-average growth in 2009," says Warren Lovely, senior economist in CIBC's latest Economic Insights report. "With less ground to be made up, growth should run just in line with the national average in 2010."

Mr. Lovely expects GDP growth in the province to climb 2.3 per cent in 2010 and 3.1 per cent in 2011. While Canada's GDP dropped 2.5 per cent in 2009, Manitoba had the country's best performance with GDP down only a marginal 0.2 per cent. "Unemployment has been contained, personal finances are in better shape than most and housing market demand hasn't materially wavered. A diverse manufacturing base is a strength. Meanwhile, transportation infrastructure is being enhanced and vast hydro potential is being developed."

He also adds that while many provinces are facing issues over recent deficit spending, over the medium term, fiscal policy will be less of a drag in Manitoba. The province has the smallest budget deficit in the country at 1.2 per cent of GDP.

The report finds that the economic recovery will not be even across the country. On the back of strong oil, potash, agriculture and uranium sectors, Saskatchewan is expected to lead economic growth in the country in 2010 with GDP up 3.0 per cent. Solid job prospects will continue to spur in-migration, with population growth stronger than at any time in the past 30 years.

The B.C. economy will be the second strongest in 2010 with 2.8 per cent growth on the basis of strength in the resource sector. The province will also see a broadening and deepening of its export base, with expanded transportation infrastructure allowing the province to lever its Gateway to Asia status. Mr. Lovely does not see the end of Olympics spending as a significant drag and notes that the adoption of a harmonized sales tax should boost investment and spur productivity growth.

Newfoundland and Labrador is forecast to see a big rebound this year with its GDP climbing 2.6 per cent as output recovers from production difficulties that plagued 2009. The economy also benefits from strong consumer spending and business investment. Barring disruptions, growth in 2011 should strengthen further to 3.3 per cent, with large energy projects having the potential to deliver strong growth longer-term.

A newfound availability of cost-effective inputs, alongside a recovery in commodity prices, is sparking re-investment in Alberta. But a still-tentative consumer suggests that the province will be slower to re-accelerate in 2010 seeing GDP growth at 2.4 per cent for the year. However, by 2011 growth is expected to reach 4.2 per cent, tops in the country, just ahead of Saskatchewan.

In badly hit Ontario, inventory restocking will see GDP growth in 2010 beat the national average for the first time since the Canadian dollar began its appreciation in earnest. That resurgence may be temporary, however, as an overvalued Canadian dollar and a reversion to slower U.S. growth is likely to weigh on the economy. A harmonized sales tax, alongside cuts to corporate taxes, will boost competitiveness and help lure jobs. A focus on emerging sectors, such as green power, also looks to pay dividends. Growth in Canada's banking sector also stands to benefit Ontario disproportionately.

Recent outperformance in Québec and the Maritimes likely won't be repeated, with solid, if unspectacular gains due in 2010-11.

Real GDP Performance

------------------------------------------------------------------------
    Y/Y %                                       CIBC Forecasts
                                  ------------------------------------------
                     Actual
                      2008           2009           2010           2011
    ------------------------------------------------------------------------
    BC                 0.0           -2.2            2.8            3.4
    ------------------------------------------------------------------------
    Alta               0.0           -2.6            2.4            4.2
    ------------------------------------------------------------------------
    Sask               4.2           -1.7            3.0            4.1
    ------------------------------------------------------------------------
    Man                2.0           -0.2            2.3            3.1
    ------------------------------------------------------------------------
    Ont               -0.5           -3.5            2.4            2.8
    ------------------------------------------------------------------------
    Qué                1.0           -1.4            2.2            2.7
    ------------------------------------------------------------------------
    NB                 0.0           -0.7            2.2            2.8
    ------------------------------------------------------------------------
    NS                 2.2           -0.4            2.1            2.6
    ------------------------------------------------------------------------
    PEI                0.5           -0.5            1.8            2.4
    ------------------------------------------------------------------------
    N&L                0.5           -3.5            2.6            3.3
    ------------------------------------------------------------------------
    CDA                0.4           -2.5            2.3            3.0
    ------------------------------------------------------------------------
    U.S.               0.4           -2.5            2.8            2.4
    ------------------------------------------------------------------------
    Source: CIBC, Statistics Canada

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/sjan10.pdf

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