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Finlayson & Peacock Op-Ed: British Columbia is out-performing most other provinces (Vancouver Sun)

Against the backdrop of slumping commodity markets and tepid global growth, British Columbia near-term economic prospects are surprisingly positive, creating a largely favourable backdrop for this week’s provincial budget. A recent Business Council report highlights some of the reasons why B.C. is doing better than Canada on several widely-cited performance metrics — including economic growth, job creation, retail sales, and housing-related investment.

One contributing factor is an expanding population. A number of other provinces are struggling with stagnant or shrinking populations, a demographic trend that weighs on the growth of economywide spending. At a little over one per cent a year, B.C.’s population is rising faster than the national average, providing an ongoing source of demand for goods, services and housing. With Alberta in the midst of a severe and seemingly protracted economic downturn, B.C. is on track for a surge in interprovincial migration, which will further bolster population growth and overall economic activity in the province in 2016-17.

A second reason for B.C.’s comparatively strong economy is the sagging Canadian dollar. While the province is being hurt by low commodity prices, exports of both non-resource goods and tradable services are kicking into gear, aided by a Canadian dollar that has lost almost one-third of its value against the U.S. dollar in the last three years. British Columbia benefits more than most provinces from a depreciating currency, for three reasons: our large tourism and gateway sectors, the relatively small share of imported inputs in the value of the output produced by B.C.’s major export industries, and less “leakage” of consumer spending dollars to the U.S. via cross-border shopping and travel. The low dollar also appears to be attracting more foreign capital into the province.

Hot housing markets are also adding to economic growth. The province’s housing sector is busy, supported by continued rock-bottom interest rates, a pickup in job creation, in-migration, and inflows of offshore money. Most provinces are projected to see a decline in residential investment in 2016-17, but that doesn’t look to be in the cards for B.C.

Finally, British Columbia’s increasingly diversified industrial and export base has made our economy more resilient, which is especially welcome at a time of weak commodity markets. The province’s traditional resource-based export engines (forestry, mining and energy), along with the large gateway transportation sector, remain critically important, of course. But today B.C. also has competitive strengths in tourism; some areas of advanced manufacturing; the high technology sector; agri-food and seafood production; education services; engineering, architecture and design; and film, digital animation and other parts of the “creative economy.” A more diverse economy reduces the impact of downturns that may occur in one or two specific industries.

Add it all up, and we expect the B.C. economy to grow by 2.8 per cent (after inflation) this year, rising to 3.0 per cent in 2017 — enough to put us at the top of the provincial rankings. By comparison, the Canadian economy will struggle to expand by 1.5 per cent in each of the next two years, pulled down by recessions in the main oil-exporting provinces (Alberta, Saskatchewan and Newfoundland and Labrador). Our forecast assumes that one major LNG project moves forward in B.C. by the last quarter of 2016. Economic growth will be slower, although still fairly healthy, if LNG investments remain on hold.

At this juncture, a primary challenge for the B.C. government is to take advantage of a broadly supportive macro-economic and fiscal picture by adopting policies to improve competitiveness and make the province a more attractive location for new investment — particularly outside of the overheated housing and real estate sectors. Business investment has been lagging in the province for some time. Looking ahead, our biggest worry is that investments in machinery, equipment, up-to-date factories and production facilities, infrastructure, advanced process technologies, post-secondary education, research and innovation will be insufficient to lay a foundation for the productivity growth that’s essential to deliver rising real wages and incomes for B.C. residents over time. Finding ways to boost productivity and build a more competitive economy is where provincial and local government policy-makers need to be directing their attention in the next few years.

Jock Finlayson is executive vice-president and chief policy officer and Ken Peacock is vice-president and chief economist of the Business Council of British Columbia.

As published in the Vancouver Sun.