As we roll into 2017, equity markets appear to embody optimism about the year to come, business investment remains sluggish and political uncertainty abounds as Donald Trump is about to assume office, Europe grapples with various existential crises and British Columbians gear up for the provincial election in May.
What will developments in the international arena mean for B.C. in 2017? How will our leading industries fare?
Below are 10 items related to B.C.’s economic prospects to watch for in the year ahead.
•Commodity markets should trend higher. Following a protracted period of weak and generally declining prices, many key commodities produced in B.C. will shift to a firmer price environment. Slightly better global growth prospects coupled with years of subdued investment in new capacity have set the stage for some upswing in energy and base metal prices. Lumber prices too will advance, as U.S. housing starts grind higher. But any benefit for B.C. lumber producers will be undercut as the Americans move to impose punitive duties on softwood lumber imports from Canada by the spring. Having already doubled since March, natural gas prices should continue to edge higher in 2017.
•The Bank of Canada will keep its overnight rate on hold through 2017, even as the U.S. Federal Reserve nudges its policy rate higher. This disjunction in the stance of monetary policy will weigh on the Canadian dollar.
•The net result is no clear direction for the Canadian dollar in the coming year. We expect it to trade in the $0.74 to $0.78 range, with higher oil prices providing some support even as the U.S. outshines Canada on most economic performance metrics.
•B.C. led the country in economic growth in 2015 and 2016. But retaining the top spot for a third year will be challenging, as growth rates across the provinces begin to converge. Real gross domestic product growth in B.C. is poised to downshift from 3% to something closer to 2.5%, while both Alberta and Saskatchewan wwill post better results as they emerge from recession. Ontario is likely to match B.C.’s growth rate in 2017.
•Job creation in B.C. looks set to lose a step. While many companies will continue to hire, the pace of job growth is expected to slip in 2017. With the number of people working in B.C. climbing by an impressive 3% in 2016, even a 1.5% rise in employment next year will still count as a respectable showing.
•The province’s formerly frenetic housing market is losing momentum. Home sales dropped sharply in the second half of 2016, led by weak numbers in the Lower Mainland. We expect further softening as the effect of the foreign-buyer tax continues to unfold. Tighter mortgage regulations, higher mortgage rates and slower job growth will also dampen sales activity and put downward pressure on home prices.
•B.C.’s international exports are reorienting toward the United States, a trend we expect to persist for the next two years. Despite uncertainty about the future of the North American Free Trade Agreement and the shift to a more protectionist U.S. under Trump, a pickup in the US$18 trillion American economy and less buoyant economic prospects for China will see the share of B.C.’s merchandise exports shipped to the U.S. move back toward 60%.
•The impact of population aging will intensify in 2017 and beyond. In B.C., the number of people aged 15 to 24 is now trending lower, while the “pre-retirement” cohort (55 to 64) continues to expand. In this environment, more people will be delaying full retirement and taking on flexible part-time or contract work arrangements.
•Total employment in the province’s burgeoning health-care and social services sector will surpass 300,000 in 2017. Over the past decade, health care has seen the biggest increase in employment of any industry. Moderate population growth, an array of new and improved health services and an aging population all point to further gains in employment in this important sector.
•Under Trump, the U.S. is likely to dial down any national effort to tackle climate change – and it is certain to reject the idea of putting a price on carbon emissions. This will cause Canadian policy-makers to recalibrate their approach to climate change, notwithstanding the Trudeau government’s stated intention to legislate an escalating carbon price on this side of the border. In the year to come B.C. will continue to have the highest carbon price in North America. •
Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.
