Plunging world oil prices are causing gloom in Alberta; but, in British Columbia, those prices are likely to give the provincial economy a kick-start in 2015. At least, that’s the way Ken Peacock, vice president and chief economist for the Vancouver-based Business Council of B.C., sees it.
“The near-term economic effect of tumbling oil prices … is a positive macroeconomic development that will help lift B.C’.s economy in 2015,” Peacock wrote in a recent commentary. “We do produce a small amount of oil in B.C., but the volumes are insignificant and there is little direct impact in terms of government revenues or scaled-back capital investment. On the other hand, there are numerous channels through which benefits will come.”
In particular, B.C. consumers will benefit. According to Statistics Canada, the average B.C. household recently has been spending $2,100-$2,300 per year on gasoline. But the oil price plunge has translated into a 25%-35% reduction in B.C. gasoline prices. If the current low prices at the pump prevail throughout 2015, Peacock’s paper suggests that a typical B.C. household could save approximately $550 annually.
“With 1.8 million households in the province, lower gas prices could translate into economy-wide savings for consumers of more than $1 billion,” Peacock wrote. “Some of this may be saved, but most of it will be spent on other goods and services, boosting activity in the retail, hospitality and other consumer service sectors.”
A lower dollar also could fuel growth. Notes Peacock: “Layer on the fact that lower energy costs will give additional impetus on the already solid U.S. economic expansion and it’s safe to say B.C. exporters will benefit from the drop in oil prices.”
Other forecasters suggest this twin boost will be particularly helpful for forestry and tourism.
Lower gas prices for business may flow through to consumers, Peacock predicts: “Some of this saving [on transportation] will be offset by the fact a lower loonie also means higher costs for imported items, but on balance, falling energy costs will lead to lower inflation and better prices for consumers.”
However, Peacock cautions, lower oil prices also may persuade proponents of creating a B.C.-based, multibillion-dollar liquefied natural gas (LNG) export sector to proceed more cautiously. That’s because long-term LNG prices are indexed to oil prices.
However, one of B.C.’s economic strengths is its diversification among sectors. As a result, as oil prices have declined, most economic outlook reports anticipate stability and growth.
The B.C. Economic Forecast Council, for example, has annual growth in 2015 and 2016 pegged at 2.7%, compared with 2.3% last year. The council is a private-sector group of 14 Canadian economists who provide an annual benchmark forecast for the B.C. government each December, leading up to the budget in February.
The council’s current forecast has B.C. real gross domestic product (GDP) growth averaging 2.5% for the 2017-19 period. The report cites B.C.’s diverse business base, which includes forestry, tourism, mining and natural gas production.
And because lower oil prices play out differently across Canada, there’s an obvious “changing of the guard” in terms of top provincial economic performances, says Toronto-Dominion Bank‘s annual provincial outlook.
The TD report’s forecast says prospects for B.C.’s tourism industry, in particular, have brightened, reflecting the mix of improving U.S. personal incomes and the lower Canadian dollar (C$).
The bank report notes that, while B.C.’s unique status as a gateway to Asia has helped to diversify the province’s export base in recent years, the current slowdown – especially in exports to China – is being countered by an increase in exports to the recovering U.S. economy.
Royal Bank of Canada’s report, meanwhile, has Ontario leading all provinces, with B.C. close behind, at about 2.9%. (See story on Ontario on page 1.)
“A pickup in residential construction south of the border is bolstering shipments of B.C. lumber products,” the RBC report says. “Positive economic conditions set the stage for further U.S. demand in 2015.”
The RBC report also notes that B.C.’s economy added 36,000 jobs in the first 11 months of 2014 – all full-time positions. “Following two years of net out-migration to other provinces, B.C. is on track to have this trend reversed,” the report adds.
The RBC report forecasts B.C.’s employment rate at 6.1% in 2014, then falling to 5.7% in 2015.
A report from Vancouver-based Central 1 Credit Union also foresees solid growth for B.C. this year. “Growth will climb to a slightly stronger pace of 2.7% in 2015, with U.S. demand and a low C$ fuelling more B.C. export growth,” says Bryan Yu, regional economist for Central 1, the trade association and financial facility for B.C. credit unions.
The Central 1 report also foresees B.C.’s yearly growth to average 3.4% in the 2016-19 period, although that’s based on the expectation that two of the proposed major LNG projects will be built. If that doesn’t happen, it will trim about half a percentage point off the 2016-19 annual average.
“I expect forestry, manufacturing and tourism will lead the way for the B.C. economy,” Yu adds. “Job creation will gain strength and the unemployment rate will fall to 5.3% by 2019.”
One of the most notable Central 1 forecasts is for B.C. personal incomes to grow by an average of 5.4% in the 2015-19 period, with retail sales growth to average 6.1% over the same period.
The report also foresees solid growth in housing starts, with 28,900 forecast for 2015 and a steady increase until starts reach 33,700 in 2019.
Says the report: “International tourist flows to the province are expected to climb [by] 5% [in 2014], largely on increasing flows from Asia, and growth is forecast to reach 7% in 2015 as demand from both overseas markets and the U.S. climb.”
As for the B.C. government, its second quarterly report says Victoria remains “on target” to balance the 2014-15 budget. The province is forecasting a surplus of $444 million by yearend.
GDP, 2013 ($bil.): 229.7
GDP % change: +3.2
2014-15 surplus ($mil.): 444
Estimated net debt ($bil.): 62
Per capita wage growth, % change 2013-14: +3.3
Household disposable income, per capita: $31,673
Figures from latest available reports/estimates
Sources: Conference board of Canada; Province IE chart
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