BC's economy is expected to post above-average growth this year. But Warren Jestin, Scotiabank's senior vice-president and chief economist, noted that global economic uncertainty continues to threaten the province's economic prospects.
That uncertainty was rekindled recently with renewed concern over the European sovereign debt crisis and reports that China's imports had risen slower than expected last month.
Business in Vancouver spoke with Jestin prior to his presentation to the Vancouver Real Estate Forum to discuss some of the upcoming challenges and opportunities for B.C.'s economy.
What factors will result in B.C. having above-average growth in Canada this year?
In part, this goes around how the national average is weighted, which is weighted heavily to Ontario and Quebec, which are struggling a lot more [than B.C.]. There's a fair bit of restraint on expenditures in B.C., but the restraint in Ontario is much more severe. On top of that, the federal government is slowing spending, so the constriction on overall spending is far worse in central Canada.
How much better off will B.C. be?
It's still slow growth when you get down to it, but we see something in the order of 2.25% growth here this year. We're calling for 2% in Canada; so a quarter point above [the national average]. We have growth of 2.5% in B.C. in 2013.
What are the risks for that forecast?
If some of the bad news bears are right, and economic growth in Asia gears down 2% to 3%, that would be very bad for export economies. Of course, if that were to happen, the Canadian dollar would weaken significantly, so there would be some offset. But if Asia slowed down, it wouldn't just be Canada that'd be worried about it.
The big unknown [for B.C.] is natural gas. Natural gas prices have been fairly soft and the prospects in the sector hinge on LNG [liquefied natural gas] plants. We're pretty optimistic that by 2015 there's going to be one up and running, and by 2020 we'll have more export capacity there. So that's good news, longer term. We think the Gateway infrastructure projects are very positive because when goods have to go to Asia, they're going by land and sea, and they're going to come through here. That, by itself, adds enormous volumes, which is the name of the game for export growth.
So you're not overly concerned about slowing growth in China?
There's no doubt that growth is slowing. If you look at China's latest five-year plan, the target is for slower growth than what we're seeing now. We expect around 8.5% or so, and it could easily drift below 8% over the next year and a half.
What's changing is the driver of growth, which is increasingly domestic demand. As this occurs, exports become less of a driver and imports become more of an opportunity. By itself, those imports are going to be supporting infrastructure development and consumer spending. That creates a lot of opportunities for Canadians, and that's why most governments in the world are trying to find ways to enter the market.
What should exporters be concerned about then?
Well, we'll be competing with other people, so we have to be competitive in the space we are in. But I think in the near term, I'd expect the Renminbi to be appreciating and for the Canadian dollar to stay roughly the same, so those competitive factors aren't going to change dramatically. The one unknown is the Australian dollar versus the Canadian dollar for commodities.
How do you feel about export prospects to the U.S.?
It's still a market that takes a huge volume of Canadian exports. The U.S. market, in its recovery mode, provides opportunities. But I think if people are looking to growth, they should be looking to other markets as well. Emerging markets are really the source of significant gains. Those are the markets that are unfamiliar, but they are the ones we must become familiar with in the next three to five years.
The recent budget will increase B.C.'s corporate tax rate in 2014 and cancel plans to cut the small-business income tax rate to 0%. Are you concerned that will affect growth?
I think that all these factors can have an incremental impact, but it's not going to change the general configuration of growth. The good news in B.C. is that government debt-to-GDP is very low when compared with other provinces and compared with virtually any other country on the face of the planet. That's a competitive advantage because it means B.C. isn't in the fiscal dilemma that U.S. states are in.
With the provincial government's estimates of increasing government debt by $9 billion over the next three years, do you have any concerns about B.C.'s fiscal situation?
Getting to a balanced budget is going to take a bit of time, so it will go up in the near term. But the example I use is, at the federal level, the government plans to balance the books sometime between 2015 and 2017. Ontario is around 2017-18. If you go south of the border and you ask about balanced budgets at the federal level, the radical idea is to balance the budget by 2040. So, we do have our problems, but when you look around, we're a commodity-rich country in a commodity-poor world. We've got a fiscal situation that is the envy of most countries, and we have a financial system that is among the strongest in the world. •
