Many of Canada's top economists remain optimistic that 2014 will be a breakout year for British Columbia's economy despite risks remaining within B.C. and its primary markets.
The 14 members of B.C.'s economic forecast council were unanimous at their December meeting in believing B.C.'s economy would expand much faster this year than in 2013.
"It's a transition year, transitioning to faster growth," said Helmut Pastrick, chief economist at Central 1 Credit Union and a member of the forecast council. "I think we've seen the really slow period behind us."
Pastrick was among the most pessimistic regarding B.C. economic growth in 2013, predicting growth of only 1.1%. But he forecast the province's 2014 economy to grow 2%.
He's expecting B.C. exports to expand this year and be a key economic driver. Much of the strength will come from continued improvement in lumber exports, though he expects exports of other goods like agricultural products and even key mining commodities like copper and coal to improve.
But that growth is predicated on improved economic conditions in main B.C. markets, especially the United States and China. This time last year, expectations were that the U.S. economy would outpace Canada's. But BMO Bank of Montreal's latest estimate has the U.S. and Canada growing at the same 1.6% pace in 2013. Disappointing results south of the border were due in part to the federal government shutdown and the $85.4 billion in automatic federal government budget cuts stemming from the inability of Congress to reach a budget deal in 2012.
The U.S. housing market, which had improved significantly in the first half of the year, slowed after mortgage rates shot up in the summer over fears that the US Federal Reserve would "taper" its policy of quantitative easing, which involved the monthly purchase of $85 billion in bonds. The central bank eventually started tapering in December.
China's economy also faced numerous challenges ranging from reduced export demand to a nationwide cash crunch over the summer that stifled business investment for the rest of the year. But by 2013's third quarter, China's economy had slightly exceeded the 7.5% GDP growth targeted by Chinese Premier Li Keqiang.
"There are still concerns about how the Chinese economy is going to fare," said Doug Porter, chief economist at BMO Capital Markets. "But it looks as if they've managed a soft landing."
That should bode well for B.C. in 2014, he said, given that there isn't one major issue that could again derail a global economic recovery. "I can point to a lot of medium-sized risks but nothing that is a huge dark cloud on the horizon."
An improving U.S. economy should also reduce the value of the Canadian dollar compared with its American counterpart.
Porter sees the loonie dropping to US$0.92 in 2014 after falling more than 6% in 2013. Pastrick expects the Canadian dollar to fall to US$0.90 or lower over the next five years. That should help boost exports for B.C. manufacturers and tourism-related businesses that could see increased American visitors enjoying their stronger currency.
While exports are likely to drive economic growth, Porter expects B.C.'s job market to remain challenging after essentially posting zero growth last year. Part of the weakness comes from muted consumer spending. While retail sales in B.C. began rising late last year, growth will remain soft because of high consumer and mortgage debt levels. Porter is also expecting B.C. housing starts to drift lower this year from 2013 levels, further affecting the domestic economy.
Despite the challenges, both Porter and Pastrick expect B.C. to post faster GDP growth than the national average over the next five years. Part of that growth is expected to come from improved conditions for the province's mining sector, as commodity prices stabilize with renewed demand for base metals from China and other emerging economies. But B.C.'s biggest economic boost could come from the start of construction of at least one liquefied natural gas facility by 2018.
"I do expect a couple starting up in that time frame, so hence my 3.7% average growth [for 2016-18]," said Pastrick. "The investment spending behind that is quite considerable."
