The Business Council of British Columbia’s latest B.C. Economic Review and Outlook points to a downgraded provincial growth forecast for 2021 of 5%, lower than our previous 5.8% growth projection but still well above average growth rates of 2.6%. The weaker-than-expected handoff going into next year is also prompting a downward revision for 2022, with B.C.’s real GDP now forecast to rise 4% (rather than 4.5%).This is taking place in the context of an increasingly choppy global economic recovery and a Canadian economy grappling with widespread demand-supply mismatches and building inflation pressures.Further ahead, in 2023, we expect the economy to downshift again as the reality of higher interest rates and higher inflation diminish consumer purchasing power and weigh on the finances of heavily indebted households.

Highlights

• Global GDP growth is projected to be 6.5% in 2021, 4.3% in 2022 and 3.4% in 2023. While the direct economic impact of the pandemic is fading, widespread demand-supply mismatches are unsettling the pace of the recovery and contributing to persistent inflation in many countries (including Canada). The period of ultra-loose fiscal and monetary policy is coming to an end.

• U.S. GDP growth is expected to be 5.6% in 2021, 3.9% in 2022 and 2.7% in 2023. The downward revisions for 2021 and 2022 are due to the global factors listed above, the ebbing effects of the Biden Administration’s massive fiscal packages, and disruptions caused by the Delta variant wave. U.S. inflation is tracking well above 4% y/y, increasing the likelihood that the Federal Reserve will tighten monetary conditions sooner than previously expected.

• The outlook for Canada’s GDP growth is modestly lower than assumed in our last report, at 5.1% in 2021, 4.3% in 2022 and 3.7% in 2023. Canada is grappling with widespread demand-supply mismatches and rising prices that are sapping some of the recovery’s initial strength.

• Canada’s unemployment rate is significantly higher than that of peer countries. Ultra-loose fiscal and monetary policy has been needed for longer to try to reduce labour market slack, but comes at a cost of exacerbating other economic imbalances such as the current credit boom causing higher established house prices.

• With CPI inflation trending close to 5% and proving to be “non-transitory”, the Bank of Canada has with some reluctance shifted its tone and timeline for the winding down of monetary policy stimulus. As well, most federal emergency supports expired in October. As these policy interventions are unwound, Canada’s recovery may be heading into choppy waters.

• B.C. real GDP growth is now forecast to be 5.0% in 2021 and 4.0% in 2022. The robust pace of growth is expected to ease in 2023 with the economy downshifting to a more average growth rate around 2.6%.

• Some moderation in current economic indicators and the provincial floods have prompted a downward revision to B.C.’s outlook.

• The full reopening of the economy will result in strong gains in consumer spending on services, even as spending in retail stores softens.

• The steady if somewhat sporadic recovery in international tourism is also a positive tailwind for the provincial economy.

• We expect private sector hiring to strengthen in 2022, with gains spreading to hard-hit sectors as well as ones where employment has recovered.

• Risks to the outlook are mostly on the downside stemming from the Omicron variant, sustained inflation and sooner-than-expected interest rate hikes.