British Columbia’s high performance economic engine is forecast to gear down this year as the province’s housing market cools, say some economic experts.
B.C.’s economy has led Canada over the past two years, but that trend is not expected to hold in 2017, with Manitoba and Ontario projected to lead the country, says an RBC Economics forecast.
Job creation and economic growth are important for Premier Christy Clark as her government seeks a fifth consecutive mandate in May’s provincial election.
But RBC forecasts the province’s economic growth will slip below the national average for the first time in six years. RBC expects B.C.’s economy to grow by 1.7%, just below the national average of 1.8%.
“It’s been very strong in B.C. in the last couple of years, getting major support from the housing market,” Paul Ferley, RBC’s assistant chief economist, said in a telephone interview from Toronto. “There’s the feeling that that support is not likely going to persist through the forecast, and with that you get a moderation in the growth rate.”
New government data released Friday showed a steep drop in real estate transactions in the Vancouver area last summer after B.C. brought in a tax on foreign buyers. The Finance Ministry data said there was more than $14 billion worth of property transferred in Vancouver in a roughly seven-week period before Aug. 1, which fell to about $3.7 billion in October.
The Real Estate Board of Greater Vancouver reported a roller-coaster year in 2016, with record sales in the spring ending the year with a 5.6-per-cent drop compared with 2015. The board reported that after residential property sales in the Vancouver area hit an all-time high in March, the market started cooling before the province introduced a 15-per-cent tax on foreign buyers in August.
Finance Minister Mike de Jong has forecast a budget surplus of $2.2 billion, largely attributed to tax revenue on real estate and he says the province is still on firm economic ground.
“B.C. is still expected to be among the top economic performers in 2017 according to many private sector forecasters, but with modest growth compared to 2016,” he said in a statement. “It’s also important to recognize that when other Canadian provinces experience positive economic growth, we all benefit.”
In November, B.C.’s Economic Forecast Council, which includes more than a dozen economists and business leaders from across Canada, said the province faces issues involving household affordability and household debt, uncertainty around the United States economy and trade agreements, and slowing growth in Asia.
The council said new residential construction across the province in 2017 will temper slowdowns in the property resale market.
Chief economist Avery Shenfeld of CIBC Capital Markets said he expects the gap between B.C. and other provincial economies to narrow this year as oil prices strengthen.
“It’s going to be a bit harder to stand head and shoulders above everybody else,” he said in a telephone interview from Toronto. “Overall, there’s still some things that stay in favour of the province, including migration, including consumer confidence and the absence of the need for a big fiscal restraint.”
Shenfeld, a member of B.C.’s forecast council, said B.C. has produced consecutive balanced budgets while most other provinces are struggling to get themselves in the black.
“You’ve been building a pretty big lead over some provinces in accumulated growth and are starting from a position closer to full employment,” he said.