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Budget 2020: B.C. conservative in its economic forecast

The province warns that risks to its fiscal plan are weighted to the downside
Carole James presents Budget 2020 | Government of B.C. webcast

What happened: The province expects B.C. to see real GDP growth of 2% in the upcoming fiscal year – an increase of 10 basis points over its first quarterly report in 2019.

Why it matters: The increase is conservative. The provincial government is keeping its forecast low and boosting its contingencies as global trade uncertainty poses risks to B.C.’s fiscal plan.

Liquefied natural gas development in B.C. is expected to contribute to the province’s economic growth this year.

The province is budgeting for real gross domestic product (GDP) growth of 2% in 2020, which is 20 basis points above B.C.’s estimated rate of growth last year, but notably lower than the Economic Forecast Council’s estimate of 2.4%.

On average, private sector economists expect growth of 2.2%. Based on their estimates, even a growth rate of just 2% would still see B.C. lead the country in terms of growth.

The Economic Forecast Council anticipates employment to grow by 1.3% this year and unemployment to sit at 4.7%.

In its latest economic forecast and outlook published February 18, the B.C. government conservatively outlined a picture of growth in an era of uncertainty and slower global economic activity.

It is an adjustment from the forecasts tabled in its 2019 budget, which, at the time, projected the provincial economy to grow by 2.4% in 2019. That number has been reset to 1.8%.

Despite that downshift, employment is now forecast to have grown by 2.6%, instead of 1.1%. Business investment grew by 10.5%, instead of 5.9%. And residential investment was up 11.2%, instead of 3.8%.

Housing starts, expected to fall by 16.7% in 2019 at the start of last year, are now forecast to have grown by 10% in 2019.

But a drop in starts hasn’t been avoided. The province now expects starts to decline by 22.1% this year, followed by an 8.5% drop in 2021, and a 4.8% drop in 2022.

The province has also reset its price projections for natural gas. Last year, it forecast an average price of $0.72 per gigajoule in the 2019-20 fiscal year – now lowered to $0.58 – and $1.09 per gigajoule in 2022-23 – now $0.88.

The latest price forecasts are to some extent intentionally lower than the average of private sector forecasts as a measure of prudence.

Overall, natural resource revenue is forecast to decline by 7.6% over the upcoming fiscal year.

Lower commodity prices and slower domestic growth are among the factors that risk threatening B.C.’s economic stability, according to the province. Those risks, which include geopolitical tensions and global trade policy uncertainty, are weighted to the downside.

The province has budgeted $1.4 billion in contingency allowances over the next three fiscal years, including $600 million for the 2020-21 year. It also includes a $300 million forecast allowance per fiscal year.

Over the next three fiscal years, B.C.’s taxpayer-supported debt-to-GDP ratio is projected to reach 17.1% (2022-23), up from 14.6% in 2019-20. The taxpayer-supported debt-to-revenue ratio is expected to reach 94.4% in three years’ time, up from 77.9% in 2019-20.

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