The Business Council of British Columbia (BCBC) has downgraded its forecast for the province’s economy in its first B.C. Economic Review and Outlook (BCERO). The Council now sees the province’s economy expanding by 2.0% (real GDP) in 2020, down from 2.2% in the previous forecast.
Canadian GDP growth is expected to limp along at close to its potential, at around 1.6% in 2020 and 2.0% in 2021. This is about as good as it gets – there is little spare capacity except in energy-producing regions. Fully three-quarters of growth in Canadian GDP simply reflects increased hours worked due to record population growth. GDP growth per person has shriveled to a meagre 0.5% per annum on average, roughly the same pace as productivity and real wages. In per capita terms, the Canadian economy is barely growing at all and individuals and families are not much better off.
The main culprit for Canada’s relatively anemic economic performance is home-grown: labour productivity is making the weakest contribution to GDP growth seen in a generation. Notably, business investment per capita is lower than 11 years ago across most asset types.
Instead, the federal government appears to be betting on super-charged immigration and population growth to increase the absolute size of the economy. However, increases in immigration and the size of the population have no impact on productivity, which drives long-term growth in real wages, or GDP per capita, which determines a country’s overall standard of living. These are the aspects of economic growth that Canadians should and do care about, not the absolute size of the economy. The evidence is that Canada’s economic growth strategy is not delivering higher real wages and living standards for Canadians over time.
B.C., however, looks set to outpace most other provinces over the next couple of years. Some current indicators, like job and export growth, are slowing, suggesting near-term growth prospects for the B.C.’s economy have downshifted.
We have again downgraded our real GDP growth projection for 2020 from 2.2% to 2.0%.
But given high and, in some segments, rising levels of non-residential construction and stronger growth in many urban-oriented service industries and the broad technology sector, the downsides for B.C.’s growth outlook appear limited. In other words, 2% real GDP growth for the province looks more or less assured, absent a sharp downturn in the U.S. or global economies. As with Canada, at this more subdued pace of growth, gains in GDP per capita will be very modest in B.C. over 2020 and 2021.