Jock Finlayson, Executive Vice President and Chief Policy Officer of the Business Council of British Columbia (submitted)

COLUMN: Four questions on the B.C. economy in 2019

Jock Finlayson is executive vice president and chief policy officer of the Business Council of BC

The arrival of the new year prompts forecasters to reflect on what may lie ahead for our economy.

For Canada and B.C., the picture is mixed. Several external risks and domestic headwinds are likely to weigh on economic activity. But some positive factors are also in place.

Starting with external risks, one important question concerns the implications of a slowing global economy.

The U.S. economy is still expanding at a decent pace. But growth across much of Europe seems to have come to halt, and China’s massive economy has cooled in the face of a slumping stock market, high corporate debt loads, and new American tariffs on Chinese exports.

So far, China has gotten the worst in the trade war initiated by U.S. President Donald Trump. If the U.S.-China trade conflict escalates further, the consequences could be dire for both the global economy and Canada/B.C.

READ MORE: How long can it go? Resilient economy enters 2019 with signs of weakness

A second question is the fate of the revised NAFTA deal hammered out by the U.S., Canada and Mexico last fall – the awkwardly named U.S-Mexico-Canada Agreement.

While Canada and Mexico can easily approve the USMCA in their national legislatures, the same is not true in the U.S., where Congress operates independently of the president and has constitutional power to say yes or no to trade agreements.

With the Democrats taking control of the House of Representatives following the recent mid-term elections, and with the Trump administration mired in daily chaos, it is unclear whether American legislators will approve the USMCA in 2019. If they don’t, there will be a dampening effect on business investment and confidence in Canada.

READ MORE: What you need to know about the new U.S.-Mexico-Canada Agreement

The path of interest rates and borrowing costs is a third key question that bears on the Canadian/B.C. economic outlook.

Last fall, the Bank of Canada was hinting it would hike its short-term policy interest rate up to three more times by the end of this year, on the heels of previous increases.

But the bank has recently changed course, as slumping oil prices and softer Canadian housing markets have led it to revise down its Canadian economic forecast for 2019. In this environment, the bank may hold off on increasing its policy rate for the first half of the year.

It is also worth noting that market-determined interest rates, including bond yields, have been declining since November, signalling some underlying pessimism about the health of the Canadian economy.

All of this points to more accommodative financial conditions for businesses and households carrying debts or needing fresh credit, compared to what forecasters were expecting last fall.

READ MORE: Bank of Canada holds interest rate, views oil slump as temporary soft patch

A fourth big question hangs over housing markets here in B.C.

The once red-hot housing and real estate industries are clearly downshifting, with home sales plunging and prices trending lower in the lower mainland and some other regions.

Residential construction is also losing steam, as housing starts in the province declined by seven per cent last year. In Metro Vancouver, starts were down by 11 per cent.

Higher borrowing costs, tighter mortgage lending rules, and new/higher housing-related taxes levied by the B.C. government are all contributing to diminished levels of activity in the housing and real estate sector.

READ MORE: Vancouver home sales fall to lowest total since 2000

I see the weakness persisting throughout 2019, and perhaps beyond. Fewer housing starts, slumping home sales, and lower prices will all take a toll on B.C.’s real estate-centric economy, especially in the near-term.

In fact, the unfolding housing/real estate downturn is the main reason why the Business Council is trimming our 2019 economic forecast for the province.

That said, we still expect the B.C. economy to expand by 2.2 per cent (after inflation) this year, which counts as a respectable performance in the Canadian context.

Fortunately, the pull-back in spending on housing and some related services will be offset by continued growth in exports, stronger public and private sector capital spending, and the benefits expected to flow from the development of LNG Canada’s $40-billion Kitimat gas liquefaction plant and the associated pipeline and other infrastructure.

Jock Finlayson is executive vice president and chief policy officer of the Business Council of British Columbia

Like us on Facebook and follow us on Twitter

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Provincial COVID-19 data can now be used for B.C. to prepare for a second wave

In the past week, B.C. has seen a slight spike in daily test-positive case counts

Herd of deer camp out in Yennadon front yard

Four bucks and two does rested under the shrubs of a Maple Ridge home Friday

Pitt Meadows technology to help grow leafy greens in Okanagan

Cubic Farms sold 16 of its machines to a company in Armstrong, B.C.

Maple Ridge mom wants justice on two-year anniversary of daughter’s death

Megan Kinnee, 19, died July 13, 2018 after motorcycle crash in Abbotsford

Maple Ridge neighbourhood rallies together for Saturday garage sale

Event aimed to bring Albion residents together – but not too close – while the financially strapped

‘It’s really frustrating’: B.C. Indigenous groups share impact of border closures

The closures have resulted in disputes between Indigenous groups and local businesses

Trudeau apologizes for not recusing himself from WE decision

He says his and his family’s longtime involvement with the WE organization should have kept him out of the discussions

Wage subsidy will be extended until December amid post-COVID reopening: Trudeau

Trudeau said the extension will ‘give greater certainty and support to businesses’

Beverly Hills 90210 star’s family selling Vancouver Island Beach Resort

You can own Jason Priestley’s Terrace Beach Resort in Ucluelet for less than $5 million

Islanders want BC Ferries to follow order that lets residents board before tourists

For ferry-dependent communities, ferries are often the sole practical lifeline to work, school or medical appointments.

Washington’s NFL team drops ‘Redskins’ name after 87 years

The franchise was given the name back in 1933, when it was still in Boston

Fraser Valley loses the Keith Wilson Waver as Ron Hupper passes away

Hupper brought smiles to the faces of hundreds of people traveling Chilliwack’s Keith Wilson Road

Most Read