On March 11, 2020 the World Health Organization declared COVIC-19 a global pandemic. A year later the economic picture remains mixed, but the overall outlook is brightening. The arrival of vaccines makes it easier to envision a return to a more normal life, although the federal government’s bungled vaccine procurement strategy means Canadians will wait longer than many others to get the jab.
How did the B.C. economy fare in the last year or so? Starting at the macro level, we estimate that total output, or gross domestic product (GDP) adjusted for inflation, fell by 6 per cent in 2020, by far the steepest drop on record. The downturn was heavily concentrated in the February-May period, as the economy has been rebounding since late last spring. For 2021, we forecast economic growth of 4 to 5 per cent.
Turning to the labour market, after plunging by 400,000 in March and April, employment revived over the rest of the year. By January 2021, employment in B.C. was down “just” 42,000 compared to last February. More than half of the remaining job shortfall is among persons aged 15-24 years, underscoring the point that young people have shouldered a disproportionate share of the economic pain during the pandemic.
The return of jobs has also varied across industries. Employment in some of B.C.’s largest export-oriented industries – natural resources, manufacturing, and agriculture – is up strongly over the past year. Professional services employment has also risen, boosted by computer services and other IT-related jobs.
On the other hand, jobs in food and hospitality, accommodation, personal services, business services, transportation services, construction, and health and education services provided by the private sector are still below February 2020 levels. The same is true in sectors like arts and entertainment and recreation services. Looking ahead, we project solid job growth in 2021 as vaccines are rolled out and the global economy strengthens.
Consumers account for more than three-fifths of total spending in the B.C. economy, so the shuttering of non-essential retail businesses last spring had a major impact as sales tumbled. But consumers have returned to stores and shops since the early summer. By the end of 2020, seasonally adjusted retail sales were running 7 per cent higher than last February. Consumer traffic has lagged in some segments of retail, and the industry as a whole is undergoing significant disruption due to the rapid growth of on-line sales and the deteriorating economics of the shopping mall sub-sector.
Consumer behaviour has not fully “normalized.” British Columbians currently are spending little or nothing on travel, sporting events, concerts, theatres or casinos. In addition, many are less inclined to patronize sit-down restaurants, bars, and businesses providing in-person services (e.g., nail salons, barber shops, and massage therapists). With most people spending less on services, savings rates have climbed, suggesting that once the virus is contained, B.C. households will have the financial firepower to drive a jump in services consumption.
With interest and mortgage rates falling to rock bottom levels, housing sales in B.C. have surged in the past several months. Prices, too, have moved up sharply, especially for single family homes. Remarkably, full year home sales rose by 21 per cent in 2020, while the average selling price notched another 12 per cent gain. Housing markets have also been frothy in the rest of Canada and much of the U.S.
Last year, in-migration to B.C. slumped as fewer people from other provinces moved here and immigration numbers dropped. As in-migration normalizes later this year and into 2022, housing markets should continue to be busy – with housing affordability metrics likely to deteriorate further.
Finally, 2020 will go down as a year that brought hitherto unimaginable government deficits as policymakers in Ottawa and Victoria took unprecedented actions to shore up a faltering economy amid the COVID-19 chaos. As a result, the federal government is expected to close out the 2020-21 fiscal year with $400 billion of red ink, a budgetary shortfall equivalent to 17 per cent of national GDP, while the B.C. government will post a deficit in the vicinity of $13 billion. Without these vast fiscal injections, the economic and human toll taken by the pandemic would have been far greater. However, the orderly winding down of costly government support programs will be essential as the COVID crisis abates.
Ken Peacock is the Chief Economist and Senior Vice President and Jock Finlayson is Senior Advisor with the Business Council of B.C.
As published in the Vancouver Sun.