The independent Economic Forecast Council has bumped up its 2005 and 2006 average growth forecasts for British Columbia.

The council expects B.C.’s real GDP to increase 3.8% this year, up from their August forecast of 3.6%. For 2006, growth is now expected to average 3.7%, up from 3.4% in their previous survey. Over the medium term, economic growth is forecast at 3.3% for 2007, and 3.2% for years 2008 to 2010.

Domestic demand continues to be the main source of growth in the near-to-medium term, the province’s Finance department said. “Key economic drivers include strong employment gains, healthy consumer spending, steady housing activity, increased non-residential construction and continued demand for natural resource commodities, prompted in part by continued growth in China,” it notes.

“Improved business and consumer confidence is a big part of our renewed economic strength,” said Finance minister Carole Taylor. “Tax reductions, cutting red tape, and balancing the budget all helped to attract people and investment back to British Columbia. And now that we are faced with a tightening labour supply, the council members pointed out that government policies and services will continue to play an important role in attracting people to B.C. and developing the workforce we need.”

Most council members noted B.C.’s tight labour supply as a risk to their forecast; competition from Alberta for skilled labour, particularly in the construction industry, may impact economic activity. Other risks that temper the outlook include construction material price inflation and the value of the Canadian dollar.

An important topic of the meeting centered on debt and capital infrastructure. The discussion explored how to find the right balance between capital infrastructure and debt affordability.

“Everyone recognized that new infrastructure is needed to support a growing province,” said Taylor. “We had a good discussion on how best to manage debt. Most council members advised that we take a flexible approach; while the province should aim for a declining debt-to-GDP ratio, we were cautioned against rigid or specific annual targets. Most felt that a moving average or target range was a more appropriate way to manage debt affordability.”

The Budget Transparency and Accountability Act requires government to seek the advice of the Economic Forecast Council as part of the annual budget process. The council is comprised of 13 economic experts from various banks and private sector forecasting groups.