The British Columbia deficit is coming in more or less exactly as forecast in the provincial budget, the B.C. government said Thursday.

The budget forecast a deficit of $1.72 billion in the current fiscal year, and the province’s second quarter report, released Thursday, continues to forecast a deficit of $1.70 billion.

The government notes that since the budget, projected revenues have improved by $522 million, but spending has also increased by $502 million, resulting in a reduction of the projected deficit by $20 million. Revenue improvements have been mainly attributable to corporate income tax and other sources. The spending increase is mainly due to school district maintenance costs and higher spending by health-care authorities.

The government also reported that private sector forecasters have downgraded their average outlook for provincial GDP growth to 3.3% in 2010 and 2.6% in 2011, and it confirmed that data from recent months indicate that economic growth has slowed. The province’s own forecast is for real GDP growth of 3.1% in 2010 and 2.2% in 2011, unchanged from the previous quarter.

BMO Capital Markets says that “While housing market activity has cooled dramatically since late-2009, and a sluggish U.S. recovery could hinder export growth, domestic demand remains firm — retail sales, employment and manufacturing sales are all seeing above-average growth so far in 2010.”

BMO concludes that BC’s fiscal hole “remains ankle deep”, it notes that its’ “growth prospects are solid and the province has a clear path back to surplus in short order.”

IE