Charting BC’s Economic Prospects in 2015: Ten Developments to Watch

1. Rebounding American economy: Starting with the external factors shaping BC’s economic prospects, at the top of the list is the accelerating US economic expansion. Buoyed by robust job gains, a recovery in housing markets, rising business investment, diminishing fiscal drag, and lower energy prices, the US is moving to a stronger economic growth trajectory. The American upswing is good news for BC and should result in a healthy increase in southbound exports along with a meaningful boost to our tourism sector. A rosier picture in the US may offset the economic weakness stemming from slower growth in Asia and sagging global commodity markets.
2. Declining oil prices: The price of crude oil has plummeted over the past couple of months and now sits well below US$60/barrel, with the downtrend still in place. For 2015 as a whole, oil prices are unlikely to average more than US$70-75/bbl. This is a very significant economic development that will support growth in the US and other net energy-importing countries, while dampening nominal GDP growth in Canada and paving the way for a further decline in the value of the Canadian dollar against the US currency. On balance, lower oil prices are an economic positive for British Columbia. We produce little crude oil and most households and businesses here clearly benefit from lower energy costs. BC consumers, in particular, will now have additional money to spend on other goods and services. Sagging oil prices will hurt Alberta’s energy-dependent economy and cause companies in the energy sector to scale back capital spending, including spending linked to the development of natural gas and LNG in British Columbia. Fewer British Columbians may find or retain employment in Alberta. The implications of collapsing oil prices on the outlook for LNG will bear careful monitoring in the months ahead. Global LNG prices are influenced by developments in oil markets, and tumbling oil prices have already translated into lower spot LNG prices and thus narrower margins for companies looking to ship BC gas to Asian markets. All in all, we would not be surprised to see more proposed LNG projects in BC postponed or deferred until global energy markets stabilize.
3. Emerging economies lose a step: China and many other emerging market economies are slowing. This is affecting BC’s export sector, directly through lower demand for BC resources and other goods, as well as indirectly via softer worldwide commodity prices. Looking ahead, BC export growth to Asia seems destined to slow; however, we believe this will be more than made up by a steady rise in the value of export shipments to the US.
4. Stronger job market in BC: After a very weak 2013 and a generally sluggish 2014, job growth in the province is finally picking up. While the pace of job creation is still modest, the upward trend that recently emerged is expected to remain in place and strengthen through 2015. We believe BC will rank in the top tier of provinces in job creation in the coming year.
5. House prices stabilize: Housing prices have long been a topic of media commentary and animated cocktail party chatter in the lower mainland. The level of house prices in Greater Vancouver is eye-watering when judged relative to incomes and to prices in other Canadian and US metro regions. But the pace of house price appreciation has actually been fairly modest in recent years. For 2015, low single-digit price increases in most parts of the lower mainland are anticipated, accompanied by generally flat prices in other regions of the province.
6. Another balanced budget: The provincial government will close out this fiscal year with a small surplus, and another dollop of black ink seemingly is in store for 2015/16. Avoiding operating deficits remains a political priority for the current government. A slight improvement in BC’s economic growth profile in 2015 should give the government a bit of extra fiscal manoeuvring room, albeit not enough to fund significant new spending or tax initiatives in the February 2015 budget.
7. BC becomes a growth leader among the provinces: Compared to most other provinces, BC should enjoy solid economic growth in 2015, according to most Canadian forecasters. Considering that BC is set to benefit from lower oil prices while Alberta, Saskatchewan and Newfoundland will all suffer, it is conceivable that BC could lead the country in GDP growth next year, after ranking fifth among the ten provinces in 2013 and posting another middle of the pack performance in 2014. The Business Council forecasts that BC’s economy will expand by 2.6% in 2015, after adjusting for inflation. At a minimum, this should place us among the top two or three provinces.
8. Shifts in interprovincial migration. Recent data has pointed to a reversal of net out-migration of people to other provinces, which BC began to experience in 2012. Alberta has been the main destination for migrating BC residents. With Alberta hit hard by plunging oil prices and the local job market gaining strength, we believe British Columbia’s interprovincial migration numbers will continue to move in a positive direction in 2015.
9. First Nations in the spotlight. The past year was an historic one for BC, with the Supreme Court of Canada’s William decision in June establishing a clearer definition of aboriginal title and finding that the Tsilqhot’in Nation had established title over approximately 5% of their traditional territory. Last year also saw the continuation of a trend toward economic agreements between industry, First Nations and government to enable development and reconcile undefined rights and title interests with economic activity on the land base. While challenges certainly remain, most parties are committed to constructive engagement. The coming year is likely to see the advancement of additional title claims through the courts as well as the conclusion of more economic development and revenue sharing agreements between BC and First Nations and more partnerships and other business arrangements involving aboriginal communities and the private sector.
10. Lumber markets perk up. As US housing starts gradually increase and rates of household formation stateside begin to “normalize” after a long slump, lumber prices should edge higher. The shift to tighter lumber markets in North America will receive an added boost from diminishing timber harvests in BC and Quebec. With the wood products industry having now recaptured its traditional position as BC’s leading export sector, stronger North American lumber markets will pay dividends for local forest companies and also benefit the wider provincial economy.