Doom and gloom from a Manitoba perspective

The Manitoba economy

CONTINUING weakness and uncertainty in the U.S. economy cannot help but spell weaker prospects for Manitoba.

The TD Bank's Provincial Economic Update came out Thursday with that bank adding to the growing list of forecasters downgrading the near-term outlook for Manitoba (as well as Ontario and Quebec).

TD economists figure extensive flooding earlier this spring and heavy dependence on trade routes into the United States will lead to modest growth in 2011 of 2.1 per cent, and it's expecting 1.7 per cent growth in Manitoba in 2012.

That's a much less optimistic forecast than the Royal Bank's prediction for 2011 of 2.8 per cent GDP growth.

Charles Mossman, acting dean of the Asper School of Management at the University of Manitoba, said there is nowhere to hide in the global economy.

"If the U.S. economy declines, it means they are not buying from China, and if China tries to hold inflation, it will affect everybody," he said. "We are very connected. That's the message."

While Manitoba may feel chuffed about not being hurt as badly as other jurisdictions, that may be of little comfort.

Exporting

ON a day when equity markets declined dramatically, along with commodity prices and the Canadian dollar, the chief economist for Export Development Canada was in Chile drumming up business.

Peter Hall said in an interview from Santiago that ongoing weakness in the United States is further justification for the generation-long campaign to get Canadian exporters to diversify their markets.

"In the midst of all this gloom and in spite of anything that EDC might be able to do, Canadian businesses have been making their own decisions on how to cope with crisis," he said.

Hall's point is that Canadian exporters have been dramatically increasing their export business to destinations other than the U.S. by five to 11 per cent in recent years. He said if the trend continues, it will be up to 25 per cent by 2020.

He said the crisis that was manifesting itself in the markets on Thursday just added to the crisis Canadian exporters have been experiencing since 2003, when the loonie began its gradual climb to parity with the U.S. dollar.

He said the shift to non-traditional export markets has been nothing short of transformational, and regardless of what happens in the short term, Canadian business is now committed to that trend.

Manufacturing

RON Koslowsky, head of the Manitoba division of Canadian Manufacturers and Exporters, is loath to buy into a hyped-up negative analysis of economic trends.

But even he did not have an optimistic view this week.

"It's scary," he said. "It's very shaky out there."

He said if manufacturers are counting on the rest of the world to pick up the slack from the United States, that is not what's happening.

And even though the consumer economy in the U.S. is not doing what everyone hopes it will, investors are still seeking safe harbour there, driving up the greenback.

It may mean a slight bit of relief for Canadian exporters, especially when they are selling into the U.S. But local export consultant Gustavo Zentner said it can create other challenges, because export customers in other countries will find their currency has also declined relative to the U.S. That makes it even harder for them to afford the Canadian product they just bought.

Zentner said he has had to deal with just that problem for a customer who made a sale to Mexico, where the purchaser has to come up with more Mexican pesos to close the deal.

And he said it's harder for small and medium-sized companies doing smaller export deals to secure insurance for those deals than it is for larger companies with multimillion-dollar deals.

But EDC's Hall said his financial institution does not run from this kind of risk scenario.

Hall also said there are growing opportunities for businesses across every sector in Canada to sell to all regions around the world, especially those non-traditional economies where growth rates are much higher than in the developed world.

Investing

WITH the TSX and the Dow down more than three per cent Thursday and European exchanges off more than four per cent, nobody's portfolio was immune to the damage.

But, most investment advisers will probably say it's no reason to head for the hills.

Gaetan Ruest, assistant vice-president of strategic investment analysis at Investors Group, said the disciplined investor understands that investing in the equity markets means there will be temporary declines in portfolio values from day to day.

He said unpredictability is all part of the equity premium you get from investing in the equity markets.

"We hope this kind of volatility does not happen too frequently, because it is somewhat unnerving to see the value of your assets decline by five per cent in a single day, and it seems in the last few month it's happening more frequently than we would like," he said.

"But you prepare ahead of time. This kind of uncertainty leads to long-term growth."

Ruest said there is no way Investors Group would advise clients to make changes in a portfolio based solely on the volatility of markets over a short period of time.

All investor advisers look for opportunities in these types of markets where blue-chip, dividend-paying stocks might be selling at a good discount.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition September 23, 2011 B4