Experts agree—the province (and country) will face some challenges in 2023
If you’ve been following recent economic activity, it shouldn’t be a shock to hear that British Columbians could be in for some tough times in the next year. With inflation roaring and interest rates breaking records, it’s natural to assume it might just continue through the new year. After all, the bill for all that spending to get us through the pandemic had to arrive at some point, right?
Experts in various industries mostly agree that we’ll continue to go down a tricky economic slope, but they differ in many of the details. How long or bad will it be? And what should the people in charge prioritize in order to emerge in the best shape on the other side? We talked to a few in the know and got their insights on what we should expect. Here are some themes for what’s ahead.
It might not technically be a recession, but it'll be close
“What I’m hearing and learning is that it’s going to be a tough 12 to 18 months, with a moderate recession on the horizon,” says Fiona Famulak, president and CEO of the BC Chamber of Commerce.
Famulak isn’t the only one picking up on this. Many experts are sharing similar opinions, though there are differences in how the months ahead might look and feel. On the national front, economists from the Royal Bank of Canada to Australian financial giant Macquarie Group are predicting a recession for Canada. Some, like Macquarie, even think it will be “severe.” What the future holds specifically for B.C. is less clear, but it will be hard to completely avoid the dreaded “R” word.
“Generally, higher interest rates will slow the economy,” says Rob Edel, chief investment officer at Vancouver-based financial management firm Nicola Wealth. “This will extend well into next year, and be partially dependent on the terminal rate central banks end up at.” Edel notes that while we could see a pivot in rates to provide relief for markets, “overall, we are likely headed for a recession—the question is severity and duration.”
Ken Peacock, senior vice president and chief economist at the Business Council of British Columbia, has a slightly rosier view. “I actually don’t think B.C. and Canada will go into an outright recession,” he says, arguing that while the province and country “could get a couple soft quarters” due to slowing economic growth, “we might escape a technical, actual recession by the numbers in 2023.”
This isn't 2008
You’d be forgiven if your mind transports you to 2008 the moment you hear the word “recession.” But whatever this predicted downturn technically turns into, its characteristics are a lot more reminiscent of an earlier recession, according to Peacock.
“You think of [the 2007-08 financial crisis], where central banks were slashing rates to bolster the economy as we went into recession,” he recalls. “This is entirely different because of the inflation picture—it makes it more like a 1981-82 recession, which creates a great deal of uncertainty. Most banking economists expect inflation to moderate and come down in 2023, but it’s not a slam dunk. It’s far from a slam dunk.”
The labour market shortage probably isn't going away
A key difference between the recession of the early 1980s and the situation today is the unemployment rate. Unemployment averaged over 11 percent in B.C. in the ’80s. Since the middle of last year, it has hovered around 4.5 percent. In fact, B.C. is dealing with the opposite problem right now. “We’re in the throes of a labour shortage that is likely going to last several years,” says Famulak.
Jill Tipping, president and CEO of the BC Tech Association, notes that tech companies both large and small still name talent supply as the biggest constraint on their growth. While some notable local firms have seen layoffs, Tipping says that 80 percent of her organization’s 11,000-plus members are reporting revenue growth of at least 10 percent. Another 78 percent have hired outside of B.C. due to a lack of available local talent.
Right now, says Peacock, “we have more job vacancies than unemployed persons.” According to Statistics Canada, he notes, there are roughly 160,000 job vacancies in B.C., and only 145,000 unemployed persons to fill them. “That’s sort of unprecedented—we haven’t seen that before in B.C.”
In Peacock’s estimation, there will be a softening in the job market as the economy slows. Unemployment levels may spike up, but only to a number like 6 or 7 percent. That would still register below the figures typically seen in a recession. “Some of the tightness in the labour market will ease,” he predicts.
Immigration is also going to be a factor
A big reason for that easing—and a potential brake on a bigger downturn—is the sheer number of people the province has been taking on lately. “B.C. welcomed more than 100,000 newcomers in 2021, more than any year since 1961,” says Bridgitte Anderson, president and CEO of the Greater Vancouver Board of Trade.
Of those, Anderson estimates that some 33,000 were from other Canadian provinces. “The influx of newcomers is expected to continue at a record pace in 2023 and beyond,” she says. “This will mitigate our labour force crunch and help minimize the impact of a potential downturn in the wider economy.”
Peacock agrees. “You have to get a lot of weakness in other sectors to get an outright contraction when you have this many people flowing into the country and province,” he says. Statistics Canada reports that the province has seen more than 14 percent growth in population over the last 10 years.
“In per-person terms, growth and GDP will be negative. It will feel recession-like,” says Peacock. “But overall, the population lift and commodity, energy and mineral prices will provide a cushion for B.C.”
The housing market looms large, as always
Of course, where those people will be housed is a question in itself—another in a growing list of concerns that have racked up over the B.C. housing market, which has long surpassed the weather in terms of its efficacy as a conversation generator in the province.
Interest rates have been rising at a historic pace, and while individuals have certainly been feeling that pinch, Peacock argues that the economy itself hasn’t fully absorbed those unprecedented rises yet. “It can take as long as 18 months for the impacts of these interest rate hikes to trickle through the economy,” he says. “Some of that is already being felt with slowing housing sales, but I think the full force shows up in 2023.”
Alex Hemingway, senior economist and public finance policy analyst with the B.C. office of the Canadian Centre for Policy Alternatives, says that the impact of rising rates is hurting the real estate industry when it comes to housing construction and developer financing: “This is alarming, given that we already face a severe housing shortage and were not building enough housing even prior to the rate hikes.” He argues that a failure to keep building would result in higher rents, something households can’t afford and a factor that may further hinder businesses struggling to recruit workers.
“The provincial and federal governments need to step up their game and massively increase investment in dedicated affordable housing,” Hemingway says. “They can afford to do so, even in the current uncertain economic environment.”
The Board of Trade’s Anderson agrees that the government needs to take a more active role in the housing crisis. “Rising interest rates curtailed record-high home prices, but affordability metrics have only gotten worse,” she says, emphasizing the need to increase housing starts. “Look for Premier David Eby to follow Ontario and some U.S. states in taking a more active role in land use policy.”
Anderson notes that campaign promises from new Vancouver mayor Ken Sim included expedited permitting for a variety of housing, but, like Hemingway, she worries that rising costs will impact the construction sector’s ability to bring more housing units online.
The forestry sector could take a cut; others have reason to be optimistic
After providing a massive boost for the economy over the last few years, the forestry sector might be in for some leaner times. Peacock notes that changes to regulatory policies will likely result in a reduction in fibre supply and the number of trees for harvest, especially in Northern B.C. On top of that, lumber prices, which had soared to record levels, are now coming down. “You’re seeing lumber prices back off, and U.S. housing starts slow,” says Peacock. “That’s going to be an area of weakness for the province—exports will come under pressure with the slowing of the U.S. economy.”
He’s much more optimistic about the mining sector, where B.C. has several projects getting close to the permitting and operations phases, and for film and TV—a sector that he says is “growing massively.”
Tourism is back, but not better than ever
Peacock isn’t so sold on the revival of tourism yet, however. “The way the number of visitors is levelling out, it’s still going to be a couple of years before we see a full return,” he notes. “I don’t know if we’ll get back to 2019 levels, at least for another two years.”
Anderson is a fair bit more hopeful about the prospect of one of B.C.’s most important sectors regaining its pre-COVID power. “Canada Place welcomed a record number of cruise ships in 2022, and the Vancouver Convention Centre was a hive of activity as conferences and trade shows resumed,” she says. “There is every reason to be optimistic about tourism in our region in both the coming year and the years ahead.”
Recession, downturn, tomato, potato—whatever this turns out to be, it’s clear that it will be challenging for individuals and institutions alike. Among the experts we consulted, the theme of working collaboratively was reiterated more than anything else.
“We need to be pulling together, getting around the table and figuring out workable solutions that can be amended in a timely way,” says Famulak. “Many of our business community members are innovators, they have some of the solutions, they have great ideas. Let’s find a way to bring those ideas to the table. Everybody has a role to play. It’s not about continually asking government for money to fix problems. We need to get to a point where private sector ideas, innovative ideas, are heard and acknowledged to build a healthy economy.”
Adds Anderson: “On the heels of a challenging few years, we seem to be entering into another difficult economic time. I’m concerned that employee burnout and mental health challenges will get worse. People are our greatest asset, and so we collectively need to be doing all we can to support and care for one another. As always, these challenges also bring significant opportunities. Employers that recognize and address the needs of their employees will be rewarded with the loyalty of their employees and customers alike. Those who fail to take these factors into consideration will struggle to attract and retain talent.”