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Economy

As trusted economists and policy advisors to business and government leaders, the Council relies on sound, evidence-based analysis to inform its policy recommendations. Through diligent tracking of BC’s economic performance, we help identify the opportunities and challenges the province must navigate in order to reach its full potential.

 

Some Musings on the Bank of Canada’s Latest Rate Cut

What are we to make of the Bank of Canada’s decision this week to trim its benchmark policy interest rate by another 25 basis points, taking it to a near record low of 0.5%? 

For one thing, the Bank is acknowledging that the energy-related downturn in capital spending and exports in Canada has been more pronounced than it was expecting earlier in the year – and the pain is likely to persist for a while yet.   Canada’s economy, we are told, is facing “complex adjustments” that will unfold over the “next few years.”  At the heart of these “adjustments” is a less rosy future for both crude oil and many other commodity prices.  This is unwelcome news, as natural resource-based industries supply more than half of Canada’s exports and play a pivotal role in driving business investment in several regions of the country.  A world of lower prices for oil and other commodities is a world in which Canadians can look forward to smaller increases in real incomes than we enjoyed during the decade that began in 2003 – a decade that coincided with a broadly-based global commodity upcycle that is now a fading memory.    

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Jock Finlayson Presentation
Does Canada have an Economic and Environmental Carbon Bubble?
Presented to the Eco-Pragmatism Summit, Vancouver, June 15, 2015

On June 15, 2015, Jock Finlayson participated in a panel debate with Jeff Rubin focused on energy and the economy.  Jock's presentation included a review of the top global oil producers, Canada's place as an energy exporter and  global energy consumption trends. He also looks at energy transitions and some implications of lower fossil fuel prices.

 

 

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In the News This Week: Five Business and Economic Stories Affecting BC

BCBC recaps the weekly business and economic news stories relevant to British Columbia's economy.

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It’s Bigger Than You Think: Non-Resource Manufacturing in BC

In British Columbia the processing of resources is a highly visible part of the manufacturing sector, particularly the processing of logs harvested from the province’s forests. But non-resource manufacturing is also a significant part of the provincial economic landscape.

This issue of Policy Perspectives takes a closer look at non-resource manufacturing in British Columbia. The sector comprises a bigger piece of the industrial base than most people realize. Looking ahead, we see non-resource manufacturing as a promising source of economic and export gains for British Columbia.

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Finlayson Op-Ed: BC economy will soon hit $250 billion (Troy Media and Business in Vancouver)

A steadily expanding population and ongoing modest economic growth are combining to propel the value of both spending and production in British Columbia to ever higher levels. As a result, we are on the cusp of a significant milestone: by the end of this year or early in 2016, the value of all measured spending and production in B.C. will reach one-quarter of a trillion dollars ($250 billion).

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Lower Canadian Dollar Dampens Cross-Border Shopping

In early 2013 the Canadian dollar was trading approximately at parity with the American greenback.  Then the Loonie started a gradual descent to its recent level of 81 cents US.  A 20% depreciation of the Canadian dollar vis-à-vis the US currency has significantly changed the relative prices of traded goods and services.  Many exports from BC shipped into the US are suddenly more competitively priced. The opposite is true for imports coming into the province from the US. 

Cross-border shopping effectively amounts to individual consumers doing their own “importing.” With the devalued Canadian dollar adding an additional cost of 20% (and more after paying fees to convert currency), a large portion of the savings on items purchased stateside that existed when the Canadian dollar was at parity has now been eliminated. So the number of British Columbians venturing into the US, unsurprisingly, has diminished.

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A Milestone Looms: BC’s Economy Will Soon Hit $250 Billion

A steadily expanding population and ongoing modest economic growth are combining to propel the value of both spending and production in the province to ever higher levels. As a result, we are on the cusp of a significant milestone: by the end of this year or early in 2016, the value of all measured economic activity in British Columbia will reach one-quarter of a trillion dollars ($250 billion).

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D'Avignon Op-Ed: Great News for British Columbia

Remember June 11and 12, 2015. We will look back on this 24 hour period years from now as a point in which B.C. started to see a material change to its economy. Specifically, it was when some $44 billion worth of investment decisions were made in two separate projects that will strengthen B.C. as a significant player in two global sectors: energy and shipbuilding.

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Finlayson Op-Ed: Canada flirting with recession (Troy Media, Business in Vancouver)

The latest economic growth report from Statistics Canada casts a cloud over the country’s economic outlook for 2015.  Real gross domestic product (GDP) fell at a 0.6 per cent annualized rate in the first three months of the year, considerably worse than even forecasters of a pessimistic bent were expecting.  Digging into the details, it is clear that the slump in global oil prices is taking a measurable toll on Canada’s energy-centric economy. 

Non-residential investment plunged by 15 per cent in Q1, led by sharp cuts in capital-spending by the oil and gas industry.  In recent years, the energy sector has accounted for more than one-third of all non-residential investment, as well as for roughly one quarter of Canada’s merchandise exports.  So the epic downturn in oil and natural gas markets is dampening overall private sector capital outlays and weighing heavily on Canada’s export receipts.  

Harsh winter weather also played a role in the gloomy Q1 report -- consumer spending came in below consensus, as many Canadians apparently decided to stay indoors.

Economists define a “recession” as two consecutive quarters of declining real GDP.  We are half way there, and some recent economic data signal further softness into the second quarter. 

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BC Now a Growth Leader in Canada

According to recently released data from Statistics Canada, the BC economy grew by 2.6% in 2014.  Against the backdrop of sluggish commodity markets, sub-par global growth and ongoing turbulence in Europe and some emerging economies, this is very respectable showing.  In historical terms, it is just slightly ahead of the province’s 2.5% long-term average growth rate.  And measured against other provinces, our economic expansion was second among the ten provinces last year.  

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Presentation:
Jock Finlayson presentation to MacKay CEO Breakfast
Macroeconomic Musings in a Slow-Growth World

On May 27, 2015, BCBC Executive VP and Chief Policy Officer Jock Finlayson gave an economic update to a group of CEOs and Top Executives at a MacKay CEO Forums Breakfast Event.

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Could Canada Experience a “Technical” Recession in 2015?

Last week’s economic growth report from Statistics Canada casts a cloud over the country’s economic outlook for 2015. Real GDP fell by 0.6% (annualized) in the first quarter, considerably worse than even forecasters of a pessimistic bent were expecting.

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Presentation:
Ken Peacock presentation to Construction Council of Vancouver Island
Building BC for the 21st Century

On May 13, 2015, BCBC Chief Economist Ken Peacock presented to the Construction Council of Vancouver Island's first annual Capital Project Forum in Nanaimo. In his presentation, Ken makes the case for increased infrastructure investment due to its strong economic impact and the role infrastructure plays in enabling access to foreign markets and improving quality of life. With the current climate of low interest rates, now is an opportune time to borrow capital in order to finance essential infrastructure projects. The presentation also looks at a variety of financing options from both the private and public sector, and notes the need for a long term infrastructure development strategy to ensure we keep pace with the global economy and our shifting demographics here at home.

This presentation is based on the Business Council's November 2014 whitepaper on infrastructure policy and financing, Building BC for the 21st Century, authored by Ken Peacock and Jock Finlayson.

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How Big is the Underground Economy?

Statistics Canada recently published new estimates of the size and composition of the “underground” economy. According to the agency, “underground” or “hidden economic” activity amounted to some $42 billion in 2012, equal to 2.3% of Canada’s gross domestic product (GDP). There is some variation among the provinces. In Prince Edward Island, the underground economy is pegged at 3.3% of GDP, while in Alberta it is less than 2%. The figure for British Columbia is 2.7% of GDP, which is somewhat higher than the national average.

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Economic Growth and Tighter Labour Markets in BC: Some Implications of the Demographic Shift Ahead

Most people are aware that the population in Canada and other western countries is aging, that longevity is increasing, and that the front‐end of the large baby boom generation has started to retire. Fertility rates have also fallen, which means the future supply of workers will be restricted.   But how quickly will the population grow, and age, in the coming decades? Will there be a dramatic shortfall of working‐age people?   

This issue of Policy Perspectives briefly reviews current population projections for BC, shining a spotlight on a few key demographic variables. The findings underscore the steady aging of the provincial as well as the national population.   It is also clear that immigration plays a significant role in the changing demographic landscape – within a decade, it will be the only source of population growth for both Canada and BC.  Immigration can also help temper the pace – but not reverse the reality of – population aging.

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Finlayson Op-Ed: Tax policies discourage small business from getting bigger (Troy Media)

The latest federal budget confirms and reinforces what seems to be an enduring belief among many Canadian policy-makers that it is better for enterprises to stay small than to build up their top lines, bottom lines and employee head counts.  According to Budget 2015, the Conservative government plans to lower the federal small business income tax rate from 11 per cent to 9 per cent by 2019.  The rate reductions will come in four half-point steps, starting in January 2016.  There is to be no change in the general federal corporate tax rate on income above the small business threshold level ($500,000) – that rate remains at 15 per cent.

All of the provinces follow the same general approach as Ottawa, by setting their small business tax rates below the rates charged to medium-sized and larger firms.  British Columbia, to take one example, presently levies a 2.5 per cent small business tax, while imposing an 11.0 per cent tax on earned income above the threshold amount.  The net result is summarized in the accompanying table: the combined federal/B.C. tax rate on small business income is currently about half of the rate on other income, with the gap set to widen over the next few years. 

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Finlayson Op-Ed: Workers’ bargaining power to rise as labour shortages proliferate (Business in Vancouver)

The critical role of skills in a modern economy and the fact that many employers continue to report difficulties in finding qualified personnel raise questions about the future supply of workers.  A number of business leaders have voiced alarm about current and/or potential labour shortfalls. Some worry that the overall economy could be de-railed by widespread shortages of workers.

In thinking about this topic, it is useful to begin by considering the larger economic picture and the lessons from past experience.  Concerns about labour shortages are not new, tending to wax and wane with the state of the economy.  Temporary labour supply-demand imbalances in particular occupations, regions, or industries are not uncommon.  But as an empirical matter, serious and persistent shortages of workers have been rare in Canada.  The reason is that the emergence of imbalances in parts of the labour market typically leads to institutional, behavioral and policy responses that, over time, serve to eliminate or mitigate the effects of shortfalls in the supply of workers.

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Digital Infrastructure will continue to transform the Way People Work and Interact

The internet and wireless communication networks have become an essential part of society’s infrastructure in the 21st century.  It has altered the way people work and interact and the way businesses operate and serve customers. And the transformation has been very rapid considering that in less than two decades the commercial internet has become fundamental to business operations. Already about 2.5 billion people are connected to the internet, a third of the world’s population; projections point to 4 billion users by 2020, equal to more than half of the global population 

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Amid an Oil Price Collapse…The Harper Government Delivers on its Balanced Budget Promise

The steep drop in the price of oil and related impact on federal finances prompted the Conservative government to delay bringing down the Budget. But despite a $6 billion hit to Ottawa’s revenues, Finance Minister Joe Oliver was determined to meet the government’s commitment to balance the operating budget by fiscal 2015-16, after seven years of red ink. Doing so required adding some modest amounts from asset sales and shrinking the contingency reserve, but in the end the government managed to erase last year’s small deficit ($2 billion) and is forecasting a razor-thin $1.4 billion surplus for 2015-16.

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Businesses and Public Policy in Canada…Apparently Smaller is Better

The latest federal budget confirms and reinforces a prevailing belief among Canadian policy-makers that it is better for enterprises to stay small instead of expanding their top lines, bottom lines and employee head count.  Budget 2015 signals that the Conservative government plans to lower the federal small business income tax rate from 11% to 9% by 2019.  The rate reductions will come in four half-point steps, starting in January 2016.  There is to be no change in the general federal corporate tax rate that applies to income above the small business threshold ($500,000) – that rate remains at 15%.

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