Why a slowing Manitoba economy matters to the PCs and leader Brian Pallister

If there's one areawhere theManitoba Tories can boast about their performance, it's managing the provincial books.

During the NDP's final year in power, Manitoba's deficit mushroomed to $932 million. The Progressive Conservativespromised to slow the flowof red ink when they assumed power in 2016.

Four PC budgets later, they've largely kept that pledge. Manitoba'sdeficitis projected to wind up at $360 million at the end of this fiscal year, thanks to a combination ofTory fiscal restraint and extra help from Ottawa in the form of increased federal transfer payments to Manitoba.

And if you reverse $347 million worth ofaccounting decisions that earned attention from the auditor general in 2018, the provincial books may already be balanced, for all intents and purposes.

PC leader Brian Pallister did what he saidhe'd do three years ago with thisparticular pledge. The question is whether that's enough to ensure a second Tory government or any Manitoba government can proceed to balance the books some time over the next four years.

Achieving this goal will be more difficult if the Conference Board of Canada is correct in downgrading its forecast for Manitoba's economy this year.

On Wednesday, the Conference Board predicted Manitoba's real GDP will grow by 0.5 per cent this year. That's down from a previous prediction of 1.6 per cent.

• Conference Board slashes Manitoba's 2019 economic growth projection ahead of election

While piddly growth doesn't sound too terrible in a year when Alberta and Saskatchewan are expected to experience economic declines, it does translate into less revenue for Manitoba.

The PST cut implemented in July removed an estimated $325million in potential revenue off the books. The evaporation of anentire percentage point of GDP growth may very well cost the province an additional $100 million this year, as the province itself conceded at budget time.

"Slower economic growth has broad implications for businesses and households, making it more difficult for governments to address fiscal challenges," finance officials stated in this year's budget documents.

They went on to predict an enduring deficit of $208 million in 2022-2023, which would be the fourth and final year of a second PC term, if below-average GDP growth persists.

Trade tensions with China

To be fair to the PCs, part of Manitoba's diminishing economic prospects are due to trade tensions with China, which isn't accepting Canadian canola and pork. Manitoba produces a lot of both commodities, making this province more exposed to China's whimsy than any other Canadian province, as the Conference Board noted.

The Tories also don't deserve blame for being in power when big-ticket infrastructure projects such as Keeyask hydro dam and the Bipole III transmission line are wrapping up. You can also blame the previous NDP government for much of the decline in the provincial mining sector, given that it takes years for mineral exploration to translate into operations.

But the Conference Board also noted a pair of PC policies are weighing down the economy: slower growth in provincial spending on programs, and an actual decline in infrastructure spending overall.

Slower growth in provincial spending

On Thursday, PC Spruce Woods candidate Cliff Cullen brushed the forecast off entirely.

"We are certainly growing the economy and we will continue to grow the economy and we're taking a lot of steps in terms of growing the economy in Manitoba," Cullen told reporters, when he was asked about the new economic projection for Manitoba.

Pallister addressed the subject directly on Friday by refuting the new and gloomier projection.

"The Conference Board hasconsistently underprojected our performance as a government and so that continues. What I mostly care about is that we achieve better results and we are," Pallistertold reporters.

"We've outlined our plan for job creation,and it's based on fact, not fancy. We have actually created jobs at a significantly higher level than the NDP did."

The Tories have pledged to create 40,000 new private-sector jobs but have yet to publish an accounting of how their promises to reduce red tape and increase support for a number of economic sectors will achieve that goal.

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Pallister is accurate when it comes to past job-creation, however. During the first 39 months of PC government,16,000 net new jobsmaterialized in Manitoba, while the NDP only presided over the creation of 1,700 net jobs during its final 39 months in power, according to Statistics Canada.

But the future doesn't look as promising. The Conference Board predicts Manitoba will experience the slowest growth among Canadian provincesin 2020, again because of Chinese trade tensions anddomestic policies.

Of course, real GDP growth is not the only metric used to judge the health of an economy. A GDP bump doesn't tell you anything about how widely the benefits of a growingprovincial economy are distributed among its citizens.

But since GDP isstrongly correlated with government revenue, it cannot be dismissed, as tempting as it is only weeks before an election.

What the economists are saying is Manitoba may not be able to balance its budget as soon as Pallister would like.

And that stands to be a major irritant to the PC leader if, in fact, he intends to step away from the premier's office early in a second term.

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