Last year the provincial economy downshifted to its slowest expansion since the 2009 recession. Fortunately, 2020 is looking a little brighter thanks to an upswing in non-residential construction.
A sooner-than-expected upturn in the residential real estate sector is also a plus for next year. Despite the improvement, the economy is still expected to grow at a subpar pace, and the coming year promises to be eventful for the B.C. business community. Below are five of the more salient factors shaping the outlook and business climate in the province next year.
Amid a lower-for-longer interest rate environment right across the Organization for Economic Co-operation and Development (OECD), Canadians should see borrowing costs ease slightly in 2020. Canada’s economy depends on consumer spending and housing-related spending to stay afloat, and both have been soft. Waning competitiveness, weak business investment and flagging exports are also dampening growth. These conditions augur lower interest rates. Lower rates would also put downward pressure on the loonie vis-a-vis the U.S. dollar and support export growth. With the Canadian economy operating below potential and facing headwinds from a weakening global backdrop and heightened trade uncertainty, even some modest stimulus by the Bank of Canada would be welcomed. Look for the central bank to trim its trendsetting rate once or twice over the next six to nine months, taking the bank rate from 1.75% to 1.5% or lower.
In B.C. the housing sales rebound will continue into 2020 and residential building activity will surprise on the upside. Under the weight of stress tests, demand-dampening tax measures and escalating affordability challenges, home sales fell precipitously in recent years. But in the second half of 2019 sales activity jumped, resulting in more balanced market conditions.
While the Ministry of Finance and development industry experts predict housing starts will fall in 2020, we have a different view. Ongoing population growth, fuelled largely by immigration, points to sustained and rising demand for housing. Lower interest rates and respectable job growth also create a more positive environment for residential investment, notwithstanding the new taxes and the effect of the federal mortgage stress test.
The B.C. government’s plan to develop more rental, co-op and non-market housing should add to new home construction. In line with stronger sales activity, we expect average resale home prices in the Lower Mainland to edge higher in 2020 and B.C. housing starts to remain close to 2019’s above-average level.
A strong expansion in the province’s tech sector in 2020 will boost wages and further strengthen this growing cluster. The arrival and expansion of U.S. tech giants in Metro Vancouver – Amazon, Microsoft and others – coupled with the rapidly expanding digital economy, promises to put upward pressure on wages for skilled tech workers. It also means mounting hiring challenges for B.C.’s homegrown tech companies.
Further fuelling tight labour market conditions and wage growth is that industries besides technology also have a robust demand for tech talent to drive digital innovation and automation. Expect people with tech qualifications to be in high demand as the sector grows quickly in 2020 and the demand for tech workers in other sectors such as finance, professional services, health care and transportation continues to climb.
The turning of a new decade will also mark a return to structural federal budget deficits. Larger deficits emerged in the Trudeau government’s first term. The pattern is set to continue and likely accelerate with a weakened, left-leaning minority Liberal government in power in Ottawa. Growing tensions within the federation will also prompt Ottawa to spend more in a bid to assuage regional conflicts. Rock-bottom interest rates reduce borrowing costs and will support the federal government’s proclivity to run deficits.
Finally, the government-determined regulatory burden on business in both the federal and provincial realms will continue to increase. This trend became well established in the Trudeau government’s first term and will persist, particularly in areas linked to climate change, energy development, energy efficiency, environmental permitting and labour standards.
The same trend is evident in B.C. Given the steady proliferation of regulations, for business and industry the only sensible operating assumption must be that governments will continue to make it more difficult and more costly to invest and operate. The regulatory environment is one of the reasons Canada has gained a reputation as one of the least business-friendly places in the OECD. The operating environment is even more complex for projects that invoke the need for extensive public engagement and/or that trigger requirements for First Nations consultation and accommodation before they can proceed. In B.C., the adoption of the United Nations Declaration on the Rights of Indigenous Peoples with no clear provincial plan for implementation will make an already difficult situation worse for all land-based operations. •
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 in Business in Vancouver.