The latest economic analysis from the Business Council of B.C. offers a slightly downgraded forecast from earlier BCBC projections for the provincial economy in 2022, albeit still a relatively solid growth rate of 3.8%. Despite heightened uncertainty caused by the Russia-Ukraine war, disruptions in global energy markets, high and surging inflation, B.C. remains well-positioned in 2022 before the economy downshifts in 2023. Thanks to large capital projects and strong global commodity markets, much of this growth is baked into B.C.’s 2022 expansion.
As we move through the year, however, growth should moderate as domestic activity slows under the weight of higher borrowing costs and scaled back policy-driven economic stimulus. Our forecast is for B.C.’s real GDP growth to downshift significantly in 2023.
As with the Canadian situation, the risks to next year’s outlook are balanced. The benefits to Canada flowing from hot global commodity markets could keep B.C. on a stronger growth path. Alternatively, more muted global commodity markets, broad-based and still rising inflation, and higher borrowing costs would weigh on growth prospects.
The bigger concern for policymakers is B.C.’s growth prospects by the mid-2020s. Structural weaknesses evident for many years – low levels of investment per worker across asset types, weak productivity growth and real wage growth, costly and burdensome regulatory processes affecting both business operating costs and confidence to make long-term investments in the province – will become more evident as the massive lift from several large capital projects subsides.
- Global GDP growth is expected to be 4.1% in 2022 and 3.7% in 2023. Key challenges facing advanced economies are runaway inflation, high indebtedness, ongoing supply chain disruptions, raw material shortages, fall-out from Russia’s invasion of Ukraine, and the possibility of future disruptions from new COVID-19 variants.
- Policymakers across major countries, including Canada, are beginning the overdue process of winding back emergency-levels of monetary and fiscal support for demand. Red-hot inflation – 7.9% y/y in the U.S. (40-year high) and 5.7% y/y in Canada (30-year high) – is clear evidence that demand is outstripping supply. Policymakers have been too slow to scale back demand-side stimulus as economic conditions improved over the past year.
- Canada’s GDP growth is expected to be 3.7% in 2022 and 2.7 % in 2023. The economy is operating at or beyond full capacity. High global commodity prices are providing much-needed nourishment for real incomes and public finances, with Canada’s external terms of trade approaching record levels.
- B.C.’s economy is forecast to grow by 3.8% in 2022. This represents a slight downward reduction from our previous forecast owing to global turmoil and rising inflation.
- Next year real GDP growth is projected to downshift to a more typical 2.6% expansion.
- Very high global commodity prices are boosting the value of B.C.’s merchandise exports. In 2021 exports surged to record levels. This momentum is expected to continue well into 2022.
- The construction of several large capital projects will continue to make a substantial contribution to growth over the forecast horizon.
- Unemployment is comparatively low and B.C.’s labour market is tight. Higher inflation and labour scarcity will put upward pressure on wages, especially in the second half of the year.