Why Manitoba's middle-of-the-road economy cannot weather a pandemic on its own

This story is part of The COVID Economy, a CBC News series looking at how the uncertainty of the coronavirus pandemic is affecting jobs, manufacturing and business in regions across Canada.

It's become cliché to describe Manitoba's economy as diverse, but that's what is giving Manitobans solace as the province's economy is put through the wringer in a global pandemic

An assorted blend of industries from agriculture to manufacturing and transportation have previously cushioned the middle province from the economic blows of provinces more vulnerable to the whims of single industries, such as oil.

And that economic track record has given officials the belief they can weather the financial toll of COVID-19.

Premier Brian Pallister has clung to economic forecasts carrying the same optimism, citing one model last week from RBC that predicted Manitoba's gross domestic product would collapse — but not as badly as any other province.

"We are projected by most of the analysts, whether in banks or bond rating companies, to be the province that is best positioned to come back from this pandemic, and we are going to make that happen," Pallister said on Tuesday.

Forecasters not confident

One economist behind the RBC forecast, however, suggests that provincial rankings are nearly meaningless.

"I think we're starting to split hairs here," said senior economist Robert Hogue, whose report pegs Manitoba's GDP as dropping 3.7 per cent this year, compared to a 1.1 per cent increase in 2019. Still, he projects Manitoba's economy will perform better relative to other provinces due to its diversification.

Hogue said the grim picture demonstrates how quickly the economy collapsed in the month since officials urged isolation to quell the spread of COVID-19.

All non-essential businesses have been closed for three weeks and counting, while 60,000 people are believed to have filed for employment insurance, finance minister Scott Fielding said. The province said in a background document last week 26.7 per cent of the labour market is either temporarily laid off or unemployed.

The question now is whether Manitoba's previously steady-as-she-goes economy can withstand an economic shock more unsettling than any downturn since the Great Depression.

It can in the short term, says University of Winnipeg economics professor Phil Cyrenne, while the province has a higher proportion of employees in goods-producing businesses and the public sector.

"But in the long-term, you need to have a vibrant private sector."

Manitoba's economy began to slow down in mid-March, shortly after the first confirmed case of COVID-19 on March 12.

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Buoyed by lower case numbers than less populated provinces like Saskatchewan and Nova Scotia, Pallister says he wants to be the first province to safely reopen the economy. 

But the toll of the shutdown will be significant even if it is short, Cyrenne said.

He wonders if private businesses, especially in the battered restaurant and hospitality industries, can survive, and worries whether civil servants will lose work as an austerity-minded province teases layoffs.

Have-not province wants Ottawa's aid

And he questions if a have-not province like Manitoba will face shrinking transfer payments from the federal government. Cyrenne mused Ottawa may cut transfers, the way it did in the 1990s, to control spiralling costs.

"That whole system, I think, is going to be in jeopardy — or at least there's going to be lots of strains on it going forward."

The Progressive Conservative government under Pallister spent its initial four years in government striving to whittle down its deficit from $850 million to an estimated $220 million by the end of this fiscal year.

It has pushed austerity during the pandemic, as well, relying on the federal government to provide financial aid for struggling individuals and businesses, while calling on provincial departments and public-funded bodies to cut non-essential costs.

The province is now expecting a year-end deficit as high as $5 billion due to a combination of soaring health-care costs and slumping revenues amid the pandemic. 

Stefan Dodds, another economist from the University of Winnipeg, said a diverse economy alone doesn't make Manitoba immune to financial woes.

"We're going to need support from different levels of government, specifically the federal government, to allow us to do the borrowing we need to do to support our public services and get us through this crisis in the short term," he said.

The province, though, has been reluctant to borrow, with Pallister saying on Monday, "We can't just borrow our way out of this mess." 

His government has threatened layoffs if Ottawa doesn't agree to let civil servants on reduced hours collect employment insurance. So far, the federal government isn't willing to pick up that tab.

"I think Manitoba does face some pretty serious kind of short-term fiscal pressures," Dodds said.

The Conference Board of Canada, which forecasts Manitoba's economy will contract by 3.9 per cent this year, attributes the province's economy downgrade, in part, to declines in transportation equipment manufacturing.

As one example, Dodds referenced bus manufacturer NFI Group Inc. permanently laying off 300 employees and temporarily halting production at its facilities, leaving at least hundreds more people without work for the time being.

Other big Manitoba employers have cut staff: Winnipeg-based Dufresne Furniture and Appliances has temporarily laid off 1,000 employees across several provinces, and Palliser Furniture let go of 500 Winnipeg staff in the short-term.

"Whether you serve your domestic market or an international market, we've seen demand really drop off a cliff," said Conference Board of Canada economist Alicia Macdonald.

Ron Koslowsky, vice-president of the Manitoba division of the Canadian Manufacturers and Exporters, said the manufacturing sector is "surprisingly still holding its own." 

Food production is booming, and dozens of manufacturers have pivoted to making personal protective equipment for the health care field, he said, but depressed demand for transport and aerospace manufacturing is unmistakable.

"There's no question that some [companies] will be altered," Koslowsky said. "Some may not be around, although I don't think they'll be that many, unless things really tank."

Manitoba Finance Minister Scott Fielding said he's encouraged the province is moving toward loosening business restrictions after repeated days of few, or no, new cases of COVID-19.

It doesn't mean the recovery, or the road to get there, will be painless, he said.

"Listen, I don't want to sugar-coat this and say somehow this is going to be easy for anyone," Fielding said in an interview.

"When you have the amount of people, the businesses that are completely shut down or partially shut down, the unemployment rate ... it's going to be some tough times for Manitobans, and really all Canadians," he said.

Fielding also mentioned Manitoba's diversified economy, and his hope in a financial system that has evaded the economic busts, but also the booms.