Here are ten key economic questions, the answers to which will help to shape BC’s economic fortunes in 2014, along with the Business Council’s predictions. They are presented in no particular order.
1. LNG - will the industry's development advance and become a reality in BC?
- Several LNG proponents are seeking to advance major projects in the province.
- The evolving global marketplace and stiff competition for expanding markets from a large number of other LNG supplier countries complicate the decision-making process for these multi-billion dollar investments.
- A number of factors, however, do put BC in the game, including a world-class upstream resource with a development track record, a stable political and economic environment, geographic proximity to markets, and broad stakeholder support for the projects.
Business Council prediction: Government is (rightly) highly motivated to see the LNG sector advance and is expected to establish a fiscal and policy framework that will support LNG development. At least one positive FID will be made next year.
2. The strengthening US economy – fact or fiction?
- The $15 trillion US economy gained momentum in the second half of 2013 and has been performing surprisingly well despite the headwinds stemming from restrictive fiscal policy and a still sluggish job market. Some forecasters now foresee US real GDP increasing by 3% in 2014. Healthy corporate balance sheets, the ongoing recovery of housing markets, expanding energy production, and improved US competitiveness all help to underpin an increasingly positive economic scenario.
Business Council prediction: A more solidly-based economic upswing south of the border will lift BC’s exports and materially boost our economy next year; the province’s lumber, tourism and advanced technology industries should be among the beneficiaries.
3. The declining Canadian dollar – will it continue to slide?
- Over the past five months the Loonie has moved from near parity to the 94 cents per US dollar range. This is good news for Canadian exporters, as it makes our products and tradable services more competitive in the US market.
- For BC and other Canadian households and businesses, however, the weaker dollar means having to pay more in local currency terms for machinery and equipment, products and services imported from the US.
Business Council prediction: The sagging Loonie will help to fuel stronger export growth in 2014. We expect the Loonie’s descent to moderate, with the Canadian dollar fluctuating in the low 90 cents range in the months ahead.
4. Balanced budget – will BC successfully ride the razor’s edge and balance the budget?
- The BC government remains committed to balancing its operating budget for fiscal 2013/14.
- Recent data indicate that tight management of expenditures and higher than anticipated corporate income tax collections are mostly offsetting revenue shortfalls in other areas.
- Improvements in the US economy, stronger business investment, and a limited commodity price recovery should benefit the province’s fiscal position in 2014.
Business Council prediction: BC will balance the 2013/14 operating budget.
5. Housing prices – will the market cool or accelerate?
- Defying many prognosticators, the housing market in BC marched forward again in 2013. Sales activity is on course to rise 5% this year, with average prices up by a similar amount.
- As the past year progressed, the market strengthened, but recently sales have slipped. The recent softening likely reflects the weak job market, a rise in mortgage rates, slower population growth, and a tightening of federal mortgage lending policies – all of which are dampening demand.
Business Council prediction: In spite of these headwinds, the Business Council expects another 5% or so increase in home sales in 2014, coupled with a slight rise in the average price. While we anticipate two consecutive years of sales increases, it should be noted that sales activity in 2014 will still be significantly below the 10 year average.
6. Job creation in BC – finally moving upward?
- Job creation stalled throughout most of the year, to the point that 2013 is shaping up to be a year of essentially no overall job growth. The job losses have been concentrated in the goods-producing segment (notably manufacturing) of the economy, while employment growth in the broad services sector advanced slightly.
Business Council prediction: BC’s job market will see a moderate recovery in 2014, particularly in the second half of the year. This forecast is based on firmer overall economic conditions that will create more jobs in existing businesses, which will be further enhanced by expected record levels of project investments. In particular, job growth in non-residential construction, infrastructure, transportation, energy and the natural resource sectors will lead the way. The result will be sustained job growth and lower unemployment numbers for BC starting in 2014 and extending over the medium-term.
7. First Nations and the economy – will First Nations become more engaged with economic development activity?
- Despite media stories suggesting that First Nations seek to block economic activity, and a few high profile cases where some aboriginal communities do oppose particular projects, the reality is that First Nations in BC increasingly are becoming partners in economic development.
- Demographic trends, the geographic distribution of resource and infrastructure opportunities in BC, and steady growth in the numbers of partnerships and agreements between businesses and aboriginal groups all suggest that First Nations will be playing a larger role in the province’s economy going forward. Looking ahead, it is vital that the provincial and federal governments work together with First Nations leaders to chart a positive course for aboriginal economic and social development.
Business Council prediction: The coming year will see stepped up efforts by government policy-makers to constructively and proactively engage with BC First Nations to find ways to advance projects, build the economy and ensure that aboriginal communities benefit significantly from economic development in an increasingly competitive world.
8. Outmigration to the Prairies – will BC continue to lose people to Alberta and Saskatchewan?
- For the past two and half years BC has experienced net outmigration to the other western provinces. This follows eight years of net inflows of people from the rest of Canada.
- The recent net outmigration trend is directly correlated to stronger job markets in the other western provinces over the past two years.
Business Council prediction: Although we expect the job market to improve in BC, better employment opportunities in Alberta and Saskatchewan, coupled with some pick up in the Ontario economy, suggest that BC will continue to experience net interprovincial outmigration through 2014.
9. Inflation - will consumer inflation pick up?
- In Canada the rate of inflation has fallen below 1%. This is below the Bank of Canada’s 1% to 3% target range; lower than desired inflation is something the central bank will be monitoring closely in 2014.
- In BC, measured inflation is even lower – indeed, at present the rate of inflation is slightly negative on a year over year basis, mainly because of the switchover from the HST to the PST. Removing HST on most services and on restaurant meals has temporarily lowered consumer price inflation.
Business Council prediction: With the economy growing relatively slowly and continued slack in the labour market, inflation is poised to stay subdued in BC next year. Inflation will certainly pick up from the recent exceptionally low rate, as the base effect of removing the HST passes (that is, once prices without HST are compared to prices without HST from the previous year, rather than being compared to consumer prices with the HST). However, overall consumer price inflation should remain below 2% in 2014.
10. Economic Growth - will economic growth accelerate in BC?
- We estimate that BC’s economy will have grown by just 1.5% (real GDP) in 2013.
Business Council prediction: Although the first quarter may start off slowly, BC’s economy will gain momentum as 2014 progresses. Favorable factors include the strengthening US economy, additional export growth, some improvement in tourism (in part due to the weaker dollar), a slight pick up in domestic consumer spending, and higher business investment spending. BC’s economy should tack on almost a full percentage point of GDP growth and expand at a respectable 2.4% pace next year.