As we reflect on the last 12 months, it’s an understatement to say 2020 is shaping up to be an extraordinary year, and not in a positive sense.
The coronavirus and the resulting shuttering of international travel and many consumer-facing businesses wreaked havoc on several important segments of the B.C. economy. When Statistics Canada tabulates the growth numbers for 2020, it will show an unprecedented downturn, up to twice as deep as the one experienced in the 2008-09 recession. Still, the final economic data is likely to be better than many forecasters feared during the dark days of March and April.
After plunging by 400,000 jobs in the early weeks of the pandemic, employment in the province has almost returned to its pre-COVID level – a near-miraculous turnaround. Six months ago, few thought that employment by late 2020 would be just 1.5% lower than before the virus smashed onto our shores. The rest of Canada has also enjoyed a robust jobs revival, albeit not quite as strong as B.C. By November, Canada-wide employment was still down 3% from February.
Why has the labour market sprung back to life?
Arguably, the principal reason is the massive stimulus engineered by governments and the Bank of Canada. The federal government has rolled out spending equivalent to an eye-watering 17.5% of national GDP to support households, businesses, students, non-profit organizations, and many others besides. The provinces collectively have chipped in another 3% of GDP. Indeed, according to the International Monetary Fund, the quantum of government fiscal stimulus provided in Canada in 2020 exceeds that in any other developed country, in some cases by a wide margin. Adding government spending and transfers equal to 20% of GDP was guaranteed to generate more economic activity and reduce the risk of a collapse of business activity and employment – something that looked to be possible in the spring.
But why has B.C. done better than Canada in restoring jobs? One reason is our greater success in handling the virus, particularly over the summer and early fall.
But that’s not the only reason. Another factor is the high level of spending on capital projects across B.C.
Looking back to 2019 offers some relevant insight. Last year, the provincial economy grew by 2.7%, after inflation. Digging into the data, private sector investment in non-residential structures essentially drove that solid growth performance. Such investment soared to nearly $20 billion in inflation adjusted dollars. In recent years, business investment in non-residential structures has typically run in the $12 billion-to-$14 billion range. But spending on LNG Canada’s massive Kitimat facility and the related Coastal GasLink pipeline, along with the construction of several large office towers and a few other major private sector projects, propelled non-residential investment to a record high last year. That is what kept B.C.’s economy on a respectable growth path leading up to the pandemic.
Even as investment on non-residential structures delivered an unprecedented lift, accounting for two full percentage points of real GDP growth last year, expenditures in all other categories combined provided just seven-tenths of a percentage point of growth. Normally, the contribution to GDP growth from non-residential investment hovers at less than half a point. Last year, the figure reached two percentage points. Thus, new construction activity related to “once-in-several-generations” capital projects was the dominant factor behind B.C.’s healthy overall economic growth rate in 2019.
In 2020, private-sector capital projects have also helped to underpin B.C.’s economy and bolstered the recovery that started late in the spring. Investments that fall in the domain of the public sector – which includes roads, hospitals and schools, but also Site C and now the Trans Mountain Expansion Project – have also contributed.
As we look to 2021 and policy-makers ponder how to ensure further economic healing, it is important to understand that the massive government fiscal injections that have played a vital role in sustaining household finances and keeping businesses afloat can’t and won’t persist indefinitely. In fact, they will begin to wind down by next spring. In that context, the B.C. government needs to ensure that project approval and permitting processes and other aspects of the policy environment are conducive to continued high levels of private sector investment across all of the key sectors of our economy. •
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.