Economists expect British Columbia’s economy to maintain its position as one of Canada’s top performers in 2018, with only a modest decline from last year’s hot performance. However, the calm, sunny economic skies that British Columbians enjoyed during the past few years now are at risk from a gathering storm.
B.C.’s real gross domestic product (GDP) grew by about 3.1% last year, according to the Business Council of British Columbia (BCBC) in Vancouver.
“Recognizing that we’re coming off three years in which B.C.’s economy grew briskly, we expect growth to continue in 2018, but at a muted pace,” says Jock Finlayson, executive vice president and chief policy officer with the BCBC. “We’re looking for that growth to downshift to about 2.5%.”
Other GDP forecasts include Vancouver-based Central 1 Credit Union‘s predicted growth of 2.1% this year, compared with 2.9% in 2017; Toronto-based Royal Bank of Canada’s forecast of 2.2% growth this year; that of B.C.’s 13-member Independent Economic Forecast Council, made up of economists from across Canada, of 2.4% growth this year, compared with 3.4% in 2017; and Toronto-Dominion Bank’s (TD) forecast that has B.C. turning in Canada’s second-strongest provincial performance, at 2.7%, behind Alberta’s forecast of 3% this year.
“Household spending has remained a linchpin, supported by strong job gains of over 3% in 2017, which has driven the unemployment rate down to a nine-year low of 4.8%,” states a TD report.
Tourism – especially from Asia – and construction are expected to be among the strongest industries this year. However, the still-hot housing market is cause for increasing concern because already sky-high prices are likely to rise, thus making housing even less affordable for workers and their families.
“If we continue to have among the highest housing costs in the world when benchmarked against incomes, it stands to reason that this will be a continuing drag on the ability of employers to expand here,” Finlayson says.
A recent housing analysis from Central 1 concluded that soaring prices in B.C.’s housing market in 2017 will moderate somewhat this year. Factors such as more restrictive mortgage regulations, rising interest rates, low inventories and higher prices will temper some demand-side pressure over the next two years. However, Central 1 still expects prices to increase.
Royal LePage Real Estate Services Ltd.‘s latest market forecast for Greater Vancouver predicts a 5.2% increase in home prices. The report notes that in 2017, the average cost of a bungalow in Metro Vancouver rose by 5.3% to $1,436,606, while a two-storey home increased by an average of 6.6% to $1,586,991.
Unaffordable housing is one of the most difficult issues facing new Premier John Horgan’s New Democratic Party (NDP) provincial government, which upset the long-reigning Liberal government last spring. The NDP took power thanks to support from the Green Party, which holds three seats.
Remedies to slow growth in house prices will be a significant theme in the Horgan government’s inaugural budget on Feb. 20.
Although the NDP inherited a strong economy, moving it forward will have its challenges. One of them is the NDP’s reputation – earned while running B.C. in the mid-1990s – for imposing higher taxes and not being business-friendly.
“There’s some nervousness about the NDP in the business community. But, so far, there haven’t been many policy changes,” Finlayson says. “The new budget may tell us more.”
The NDP did send out a few signals in last September’s budget update, which included a 50% cut in B.C.’s Medical Services Plan fees, resulting in savings of $900 annually per family. The government also eliminated tolls on the Port Mann and Golden Ears bridges, saving the average commuter about $1,500 a year.
To help pay for these cuts, taxes were hiked slightly for high-income workers and corporations.
B.C. Finance Minister Carole James is preparing for the 2018-19 budget knowing that taxpayer-supported debt (which excludes Crown corporations’ debt) for 2018-19 will jump to $47 billion from $44.9 billion in 2017-18, while the taxpayer-supported debt/GDP ratio will increase to 16.4% from 16.2% over the same period.
Regardless, B.C. is the only province in Canada that holds an AAA rating with Standard & Poor’s Financial Services LLC, Fitch Ratings Inc. and Moody’s Investor Service Inc. (all based in New York).
Protecting that rating will be increasingly difficult, though, because of external storm clouds, including the possible cancellation of the North American Free Trade Agreement (NAFTA).
“The Business Council is increasingly pessimistic about whether NAFTA will survive,” Finlayson says. “As it is with so many things involving [U.S. President] Donald Trump, NAFTA now is in uncharted waters.”
B.C.’s forestry sector already has been hit by new U.S. import duties, averaging 20%, on softwood lumber. Furthermore, most of the proposed liquefied natural gas (LNG) export projects promoted by the former Liberal government are unlikely to proceed due to LNG oversupply globally and low prices.
However, a landmark decision by the NDP last December to complete B.C. Hydro’s $10.7- billion Site C hydroelectric project on the Peace River in northeastern B.C. will give construction a significant boost. This is B.C.’s largest-ever capital project.
Other positive signs include a strong retail sales growth forecast by Central 1 at 6.5% this year. Central 1 also forecasts employment growth of 2.5% and an unemployment rate around 5%.
Finally, with so much political uncertainty in the U.S., which accounted for 54% ($21.2 billion) of B.C.’s $39.1 billion in total exports in 2016, the Horgan government is strengthening B.C.’s relationships with Asia.
In January, the premier and several cabinet ministers visited China, Japan and South Korea to strengthen both business and cultural ties. In 2016, China was B.C.’s largest Asian trading partner, with $5.9 billion in goods exported, followed by Japan at $3.7 billion and South Korea at $2.1 billion.