2016 will be a tale of two economies: the still-struggling mining and energy sectors will likely fail to see any significant lift in depressed commodity prices, while it’s a much rosier outlook for non-resource industries.
That dynamic explains why in forecast after forecast, economists are predicting British Columbia will lead the country in economic growth, even as Canada’s economy will see little expansion thanks to the falling price of oil.
While resources still play an important role in B.C., the provincial economy is much more diversified than those in provinces like Alberta and Newfoundland and Labrador, which have relied heavily on oil production to boost wages, employment and government revenues.
“We do have a very diverse economy in B.C., probably looking across the country the most diverse, and way more diverse than Alberta,” said Ken Peacock, vice-president and chief economist at the Business Council of British Columbia.
“We do have the resource base but then we also have this urban-based economy where you see development of high-tech and tradable services and other pieces of the puzzle.”
With its similarly diversified economy, Ontario is expected to be the second-best-performing province in 2016, with projected GDP growth of 2.5% compared with 3.1% for B.C., according to the Royal Bank of Canada (RBC).
The low Canadian dollar and the stronger U.S. economy are the twin factors that provided a boost to B.C.’s economy in 2015 and will continue into 2016. That effect has already been seen in B.C.’s tourism sector, with
Vancouver welcoming a record nine million visitors in 2015, according to Tourism Vancouver.
Other strong performers included agriculture, where exports jumped 20% in 2015, film and television, real estate and consumer spending.
Low interest rates are playing a big part in boosting real estate and consumer spending in B.C., and Central 1 is forecasting rates to stay low until 2017.
“We’re still seeing a lot of demand coming from the lower-rate environment,” said Bryan Yu, senior economist at Central 1 Credit Union. “That consumption side of the economy is a key driver and expected to be a significant growth driver going into 2016.”
B.C. exports to China and Japan have dropped off as those economies have slowed. As the dollar dropped in response to low oil prices, exports to the United States have picked up.
But as export growth to Asia has waned, B.C. is once again heavily dependent on exporting to the U.S. So one risk to B.C.’s economy would be a slowdown south of the border, although all signs point to continued U.S. economic growth, Peacock said.
As resilient as the B.C. economy seems in the face of low oil, coal and natural gas prices, there’s no question that resource doldrums are causing economic pain, especially in the northeast and Interior. Mines have closed in the northeast, causing significant job losses, and more than 800 B.C. companies that supply equipment or services to the Alberta oilsands are being adversely affected, Peacock said. Exploration work for oil and gas and for mining is almost nonexistent.
“The direct impact of resources is still pretty small, if you add in forestry, natural gas and mining extraction,” Yu said. “But it does have multiplier effects on the economy when we see demand for professional services in Vancouver [and] other types of support services.”
Neither Peacock nor Yu are particularly worried about Vancouver’s overheated real estate market.
“As long as we continue to get some inflow of population and some inflow of money, and interest rates don’t jump up suddenly, I’m not particularly concerned about Metro Vancouver’s housing markets,” Peacock said. “Some of the price metrics are on the high side, but that has been the case for a long time in Vancouver.”
However, RBC has flagged high housing prices in Vancouver as a concern, calling recent price gains “unsustainable” and warning that they are likely to reduce homebuyer demand. B.C. home prices rose 11% in 2015, and detached home prices in Greater Vancouver rose over 22%.
@jenstden
