When economists dis- cuss British Columbia’s economic forecast for 2013 and beyond, there’s a huge elephant in the room – B.C.’s provincial election, set for May 14. That’s because this election symbolizes a tremendous amount of uncertainty.
It’s entirely possible that British Columbians will throw out the long-serving, business-friendly Liberal government that has held power in Victoria for more than a decade and return to left-of-centre rule by the New Democratic Party (NDP), which last held power during the 1990s. Voters still are very angry about how the Liberals, under former premier Gordon Campbell, blindsided them immediately following the previous election with an unexpected switch to the broader-based harmonized sales tax (HST) from a provincial sales tax (PST). The HST was rejected later, but current Liberal leader and premier Christy Clark is still paying the price.
“For now, I’m neutral and assuming the status quo in B.C. policy won’t change,” says Helmut Pastrick, chief economist with Central 1 Credit Union in Vancouver.
Although Liberal government policies are well known, he says, NDP leader Adrian Dix has thus far said little regarding his party’s policies. “One might expect shifts to more business taxation and increased social spending under an NDP government,” Pastrick adds, “but we don’t know for sure.”
The election aside, there are a number of key external factors that should help B.C. maintain a moderate but steadily improving economy over the next few years.
Central 1’s new forecast calls for 2.1% gross domestic product (GDP) growth in 2013, compared with 1.9% last year. The forecast also predicts improvement to 2.7% growth in 2014 and a more robust average annual growth of 3.3% in 2015-17.
Toronto-Dominion Bank (TD) economists are less optimistic, calling for growth of 1.7% in 2013, followed by 2.5% in 2014.
Meanwhile, economists with Royal Bank of Canada (RBC) predict growth for B.C. for 2013 and 2014 to be 2.3% and 2.6%, respectively.
In comparison, in Victoria’s second quarterly report late last November, the B.C. government’s independent economic forecast council lowered its GDP forecast for 2013 to 2.2% from 2.5%.
Regarding unemployment, Central 1 sees that metric falling to 6.5% this year and 6.1% next year, then average out to a much improved 4.5% during 2015-17 from a rate of 6.7% in 2012.
TD forecasts the unemployment rate will hold in the 6.5%-6.7% range over this year and next.
The Statistics Canada data for B.C. in December showed a significant switch to full-time jobs from part-time jobs. Pat Bell, B.C.’s minister of jobs, tourism and skills training, says this is a sign that B.C. employers are gaining confidence.
On a regional basis, the strongest jobs growth within the province is being seen in the Northeast, Cariboo and Kootenay regions. Topping the positive drivers in B.C. is the expectation of a steady upswing in the U.S. economy – especially in the housing sector.
“There is considerable pent-up demand among U.S. consumers, especially for housing, that will materialize during the next five years,” Pastrick says. “Meeting this pent-up demand should be very positive for B.C.’s lumber industry, and it should also lead to higher lumber prices. I think B.C. will have a good run for the lumber sector over the next year or so, but we may then have difficulty meeting higher lumber demand due to negative impacts of the pine beetle infestation.”
@page_break@ In fact, RBC’s latest B.C. forecast notes that stronger U.S. housing starts already helped B.C. lumber exports surge by more than 15% in the first three quarters of 2012. Adds the RBC report: “We expect U.S. housing starts to continue climbing out of their deep hole in 2013 and 2014.”
The TD economists’ report notes that the B.C. lumber industry is benefiting from rebuilding efforts in Japan following the devastating tsunami and earthquake in 2011. Adds the report: “A better performance from the B.C. mining industry is also in store, once base and precious metals firm up.”
The $8 billion in federal government shipbuilding contracts slated for B.C. shipyards will begin to be felt positively in 2013 as well. However, on the downside is a continuing domestic housing decline and cutbacks in B.C. government spending.
Housing prices are falling in many regions in B.C. – especially in the very high-priced Greater Vancouver market. That’s partly because of new mortgage-lending rules imposed by Ottawa. So, most economists expect fewer housing starts in B.C. this year.
The RBC report calls for housing starts of 23,800 units this year from 27,700 units in 2012, then adds: “This downturn will also restrain activity in several segments of the retail sector.”
B.C. retailers also may feel some heat as Victoria tightens its purse strings in a bid to balance its budget. The 2013-14 provincial budget, to be tabled on Feb. 19, is likely to try to make inroads in the deficit.
The provincial government also has to pay back about $1.6 billion to Ottawa for the HST transition costs it received.
These tougher times in Victoria are reflected in Moody’s Investors Service Inc.‘s recent decision to downgrade B.C.’s credit rating to AAA-negative from AAA-stable. Still, with an uncertain election looming, the upcoming budget is expected to be tinkered with, at best, in order for the Liberals to forecast a balanced budget for 2013-14.
Still, increased exports, especially to Asia and the U.S., will be the key to an improving B.C. economy over the next few years. But most economists foresee the Canadian dollar’s strength continuing, so exporters will get no help from exchange rate.
In other words, this will have to be a “made in B.C.” recovery.
Population: 4,622,573
GDP 2011 ($bil.): 206.2
gdp % change: +2.8
2012-13 deficit ($bil.): 1.5
Estimated net debt ($bil.): 38.9
Median after-tax income, all families: $48,300
household disposable income/capita: $28,375
Figures from latest available reports/estimates
Sources: Statistics Canada; Government reports
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