In an environment of rapid economic and political change, further compounded by activist governments at both the federal and provincial levels, identifying 2018’s most significant stories affecting the provincial economy is challenging. Below we take a stab at the task, focusing on developments that we judge to be of particular relevance to B.C.
The first item on our list is easy: LNG Canada’s decision to advance its massive LNG liquefaction plant and export terminal in Kitimat. The $40 billion project represents the largest private sector investment in Canada’s history. It promises to bring unprecedented economic activity to B.C.’s northern communities. And it is causing economists to recalibrate and hike their growth forecasts for the B.C. economy through the next half decade. The multi-year build – involving the Kitimat facility as well as a new pipeline to connect the liquefaction plant to the northeast gas fields -- will generate thousands of construction jobs. Once completed, the project will stimulate additional upstream drilling and production to supply the Kitimat facility with large volumes of natural gas. The timing of the announcement and the planned construction is fortuitous, coming at a time when growth in B.C.’s economy is downshifting as the housing market cools and consumer spending takes a step back.
The softening of B.C.’s residential housing market, which is a significant factor in the ongoing economic slowdown, is the second big economic story of 2018. In last February’s provincial budget, the NDP government introduced a suite of tax measures to curb non-resident housing demand, discourage speculation, and extract more revenue from affluent property owners. These changes came in the wake of more stringent federal lending policies, requiring lenders to “stress test” new mortgages to ensure borrowers can manage payments as interest rates creep higher. The provincial tax measures were also introduced amid an environment of rising central bank and market interest rates. This combination of factors has hammered the B.C. housing market: home sales are off by 25-40% in most urban markets compared to year ago levels, and transaction prices are slipping. The shift in the housing market stands out because the residential real estate sector played an oversized role in driving provincial economic growth from 2014 through roughly the middle of 2017.
The tightening labour market is another important development. While momentum has been gathering in the job market for a number of years, 2018 saw hiring challenges intensify for B.C. employers as the unemployment rate tumbled to near-record lows and the number of unfilled positions surged. Although labour markets in other parts of the country also feature little slack, B.C.’s unemployment rate is a full percentage point lower than in the second ranked province, and the proportion of unfilled jobs here is higher than elsewhere in Canada. After many years of muted gains, wage growth is also accelerating. B.C. presently leads the country in wage gains, providing further confirmation that the job market is unusually tight. In 2019, we expect hiring challenges to worsen for many employers.
The recent release of CleanBC, the provincial government’s plan outlining a path to a lower carbon future, also makes our list. It belongs in the top five because of the sweeping ambition of the NDP government’s stated goals and the unknown but likely material cost and regulatory implications of the plan for businesses and households. For example, CleanBC mandates that, within 20 years, every new car sold in B.C. will be a zero-emission vehicle. It also lifts B.C.’s low carbon fuel standard to 20% by 2030 and toughens tailpipe emissions standards for vehicles sold after 2025. All of these steps will raise prices for vehicle users and owners (and taxpayers). As part of the plan, the province will be developing a “low-carbon industrial strategy” that takes account of the competitive position of B.C.’s main export industries, which are compelled to go head-to-head with the same industries in other jurisdictions that have not priced carbon and have less far-reaching carbon policies than B.C.
The final story on our list is the dramatic shift in the political landscape in the country. The past year brought to power populist, right-leaning governments in Ontario, Quebec and New Brunswick, signalling the arrival of a period of heightened federal-provincial conflict and widening policy divergence encompassing the domains of energy, climate, immigration, infrastructure, and taxation. Although the Alberta government did not change, polls suggest the rebranded Conservative Party will handily win the May 2019 election in that province. The stage is thus set for epic battles between the leftist policy agenda that now holds sway in Ottawa and the different priorities emerging among many of the provinces.
Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.
As published by Business in Vancouver.