THE RACE BETWEEN THE VIRUS AND THE VACCINES - B.C. ECONOMIC REVIEW AND OUTLOOK February 2021 Ken Peacock Chief Economist & Senior Vice President
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THE RACE BETWEEN THE VIRUS AND THE VACCINES
B.C. ECONOMIC REVIEW AND OUTLOOK
February 2021 Ken Peacock Dr. David Williams
Chief Economist Vice President, Policy
& Senior Vice President
B.C. ECONOMIC
REVIEW AND OUTLOOK
FEBRUARY 2021
THE RACE BETWEEN THE VIRUS AND THE VACCINES
H I GHL I G HTS
•Global GDP is expected to expand by 5.6% in 2021 and 4.6% •The provincial economy will grow by 4.5% in 2021,
in 2022, following a -2.8% contraction in 2020, according marginally outpacing Canada. A slightly stronger growth
to the Bank of Canada. Globally, vaccination programs are performance is expected in 2022.
being rolled out about six months earlier than previously
expected. It is assumed this will allow many advanced •Global trade has recovered; this backdrop is positive for
economies (except perhaps, Canada) and China to achieve B.C.’s merchandise exports which are trending higher and
broad COVID-19 immunity for their populations by the end will help to underpin the recovery.
of 2021. Other emerging economies would achieve this by
•Provincial employment has almost returned to its pre-
mid-2022.
COVID level; the labour market recovery, however, is very
•The U.S. economy is expected to recover faster than most uneven across sectors.
other advanced economies and to return to full capacity by
•Air transportation and other tourism-dependent industries
the end of 2021, roughly two years earlier than Canada.
remain the epicentre of economic displacement. They will
•Canada’s fiscal response in 2020 was easily the largest in be slow to revive and will weigh on the recovery process.
the world. Nevertheless, Canadian GDP growth is expected
•Retail spending has rebounded and is on a healthy upward
to be only 4.0% in 2021 and 4.8% in 2022, after a large
trajectory.
contraction of -5.5% in 2020. The tepid recovery (relative
to other countries) means the economy will operate •Construction will be a leading growth engine in 2021-22 as
with considerable excess capacity, and inflation will not several large capital projects resume full-scale activity and
sustainably return to its 2% target, until sometime in 2023. governments spend more on infrastructure.
COVID-19 PANDEMIC the course of COVID-19 or delays IMPROVED GLOBAL
The COVID-19 pandemic to date has
the economic recovery currently OUTLOOK, ESPECIALLY FOR
caused over 100 million infections
expected in 2021-2022. THE UNITED STATES
and more than 2.2 million fatalities Canada is in the top third of affected Global GDP growth is expected
worldwide. In terms of fatalities per countries. Out of 152 jurisdictions, to reach 5.6% in 2021 and 4.6% in
capita, the worst hit countries are Canada has the 47th highest fatality 2022, following a 2.8% contraction
Belgium, Slovenia, United Kingdom, rate per capita, at 532 deaths per in 2020, according to the Bank of
the Czech Republic, and Italy. The million persons. This is similar to Canada (Table 1). Many countries
U.S. has the 8th highest fatality rate. Greece, Ukraine, Israel, Costa Rica, are in the grip of a second pandemic
A new variant (B.1.1.7), a mutation Eswatini, and Russia. Canada has wave, compounded by the spread
of the SARS-CoV-2 virus, emerged recorded over 800,000 COVID-19 of the new B1.1.7 strain, that is
in December in the U.K. and has infections and 20,300 fatalities, proving considerably worse than the
since been reported in over 30 the majority of which have been first wave in respect of cases and
more countries, including Canada. concentrated in a few provinces fatalities.
It remains to be seen whether the (Figure 1). B.C. accounts for around
Despite the reintroduction of social
arrival of the new variant alters 9% of cases and 7% of deaths
lockdowns, the economic impact
nationally.
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B.C. ECONOMIC
REVIEW AND OUTLOOK FEBRUARY 2021
appears to be less disruptive than
TA BL E 1 : G LO B A L E CO N O MI C F O R E C AST
during the first wave because of ( A N N UA L % C H A N G E I N R E A L G DP )
extraordinary fiscal and monetary
support already in place and because 2019 2020f 2021f 2022f 2023f
people have adapted to new ways
of living and working. Global public World 2.8 -2.9 5.6 4.6 3.9
debt as a percent of GDP is at levels U.S. 2.2 -3.5 5.0 3.9 2.0
last seen in the aftermath of World
War II (Figure 2). Euro area 1.3 -7.1 4.4 4.5 2.7
The good news is that effective Japan 0.3 -5.2 2.8 1.9 1.0
vaccines are being rolled out
China 6.0 1.7 8.4 5.4 5.9
globally about six months earlier
than previously forecast. This has Canada
pulled forward the timing of the
Potential GDP 1.5-2.1 0.1-1.3 0.2-1.6 0.3-1.9 0.2-2.2
economic recovery in the advanced
economies (except perhaps, Canada). Actual GDP 1.9 -5.5 4.0 4.8 2.5
Commodity prices have improved
f - forecast
in anticipation of stronger global
Source: Bank of Canada.
demand (Figure 3). The Bank of
Canada assumes that vaccination
programs will achieve broad unemployment rate is currently 6.7%. CANADIAN OUTLOOK
population immunity in the advanced Additional fiscal support of USD
Canadian GDP growth is expected
economies and China by the end 900 billion will be rolled out during
to be 4.0% in 2021 and 4.8% in 2022,
of 2021, and in other emerging 2021 whilst extraordinary monetary
following a large contraction of 5.5%
economies by mid-2022, enabling policy stimulus remains in place.
in 2020. The Bank of Canada assumes
a gradual resumption of normal The U.S. recovery is expected to be
that vaccinations help achieve herd
activities. Risks to the global growth broad-based across consumption,
immunity by the end of 2021 in line
outlook are evenly balanced. investment, and trade as the rollout
with other advanced countries. This
of vaccines gradually allows rollback
United States GDP growth is timing is looking increasingly shaky,
of virus containment measures.
expected to be 5.0% in 2021 however. Canada's vaccination
and 3.9% in 2022, following a The U.S. output gap – the difference rate appears to lag other advanced
relatively mild (in comparison to between the level of potential and countries by about six months.
Canada, Japan, and the Euro area) actual GDP – is expected to close Therefore, a more realistic assumption
contraction of 3.5% in 2020. The U.S. towards the end of 2021 and inflation may be that Canada will achieve herd
will reach 2% by late 2022. This is immunity by mid-2022, in line with
much earlier than in other countries, the emerging market economies.
including Canada – where the output Canada’s economy will likely operate
Canada increased its
gap will not close for another two below its potential until demand fully
indebtedness by a further 41%
years. In other words, even though recovers sometime in 2023, and in
of GDP during the pandemic the U.S. was the 8th most affected the interim, this will cause persistent
– the largest increase in the country from the coronavirus (as disinflationary pressures. Inflation is
world. Canada thus became noted earlier), its economy will be not expected to sustainably return to
the 6th most indebted operating at full capacity by the end the central bank’s 2% target until
country globally as at 2020- of 2021. U.S. GDP growth will cool to 2023.
around 2.0% in 2023 as the effects of
Q2. This will leave us more The shock to aggregate demand
policy stimuli ebb.
vulnerable to future financial from the pandemic has been uneven.
and economic shocks. High-contact services industries saw
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REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 1: P ROVIN C ES HAV E FA R ED D I F F ER EN TLY
COVID-19 cases and fatalities by province, per capita, as at 25 January 2021
COVID-19 Cases per 1,000 population, COVID-19 Deaths per 1,000 population,
at 25 January 2021 at 25 January 2021
Quebec Quebec
Alberta Manitoba
Manitoba Canada
Canada Ontario
Saskatchewan Alberta
Ontario B.C.
B.C. Sask
Nova Scotia Nova Scotia
New Brunswick NB
Nfld & Lab Nfld & Lab
PEI PEI
0 5 10 15 20 25 30 35 0.0 0.2 0.4 0.6 0.8 1.0 1.2
Source: Government of Canada, COVID-19 Situational Awareness Dashboard.
F IG URE 2: GLOBAL P U BL I C I N D EBT ED N ESS I S AT L E V E L S L AST S E E N A F TE R WO R L D WA R I I
Global public debt, % of GDP
Sources: Historical Public Debt Database; IMF, World Economic Outlook; Maddison Database Project; and IMF staff calculations.
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B.C. ECONOMIC
REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 3: COMMO D I T Y P R I C ES HAV E ST R EN GTH E N E D
Bank of Canada commodity price index, weekly since Jan 2020, Canada
Index, 3 Jan 2020 = 100
180
Total Energy Metals and minerals Forestry Agriculture
160
140
120
100
80
60
40
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Sources: Bank of Canada.
F IG URE 4 : COVID CAU SED A N EX T R AOR D I N ARY DE C R E AS E I N L A B O U R D E M A N D
Employment hours by industry, change from Feb to Dec 2020, Canada
Professional, scientific and technical services 4%
Public administration 3%
Educational services 3%
Utilities 3%
Finance, insurance, real estate, rental and leasing 1%
Health care and social assistance -1%
Forestry, fishing, mining, quarrying, oil and gas -2%
Manufacturing -3%
Wholesale and retail trade -5%
GOODS INDUSTRIES -5%
ALL INDUSTRIES -5%
SERVICES INDUSTRIES -5%
Agriculture -7%
Construction -8%
Transportation and warehousing -10%
Information, culture and recreation -11%
Business, building and other support services -15%
Other services (ex. public admin.) -18%
Accommodation and food services -32%
-35% -30% -25% -20% -15% -10% -5% 0% 5%
Sources: Statistics Canada.
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B.C. ECONOMIC
REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 5: CANADA'S F I SC A L R ESP ON SE WAS E AS I LY TH E L A R G E ST A M O N G ST TH E G 2 0 CO U N TR I E S
Change in G20 budget deficits during 2020 (% of GDP) vs projected 2020 GDP growth
% of
CAN GBR USA BRA ITA ESP JPN DEU FRA RUS ZAF AUS CHN IDN IND KOR MEX TUR
GDP
0
-5
-10
-15
Discretionary Non-discretionary (including automatic stabilizers) GDP growth in 2020
-20
Note: Discretionary fiscal support is measured as the change in the cyclically adjusted primary balance (CAPB); nondiscretionary fiscal support is the residual.
The allocation between discretionary and non-discretionary measures should be considered indicative because output gap estimates, which are used to derive
the CAPB, are subject to a high degree of uncertainty.
Sources: IMF, WEO database; and IMF staff estimates.
the largest drop in GDP, resulting in a (CERB). The household saving rate, current policy settings we see little
severe decrease in labour demand as which is usually around 5% or less of reason to expect it will be sustainably
measured by employment hours by disposable income, soared to a record higher in the long term. Canada
industry (Figure 4). The distribution 27.5% in 2020Q2 before slipping to was the 9th most indebted country
of the shock has particularly affected (a still high) 14.6% in 2020Q3. In our globally in 2019, with the combined
lower-income and young workers view, it will require a careful balancing debt of corporations, households,
who work in high-contact service act to wean Canadian households off and governments hitting 302% of
industries. The national unemployment fiscal and monetary stimuli as private GDP in 2019. Canada increased its
rate was 8.8% in December 2020, sector demand improves over the next indebtedness by a further 41% of
having peaked at 13.8% in May. three years. GDP during the pandemic – the
largest increase in the world. Canada
Extraordinary policy stimulus has Overall, the near-term risks to the
thus became the 6th most indebted
helped to offset the shock. Canada’s Canadian outlook are weighted to the
country globally as at 2020-Q2. This
fiscal response – both federal and downside as Canada's vaccination
puts us in a vulnerable position once
provincial combined – was easily rates falter and appear set to push
the COVID crisis has passed.
the largest in the world as a share back to mid-2022 the timing for a full
of GDP (Figure 5). Households return to normal activities. Canada’s Canada’s borrowing spree was partly
were more than compensated for long-term prosperity appears more a necessary response to the crisis and
the loss of private sector wages precarious. Labour productivity partly a rational response to ultra-low
through federal programs such as the growth has been chronically low for global interest rates. Arguably, it is
Canada Emergency Response Benefit the past two decades, and based on also a bet that either borrowing costs
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REVIEW AND OUTLOOK FEBRUARY 2021
will stay ultra-low for a long time or
that decades of higher productivity TA BL E 2 : B .C . E CO N O MI C O U TLO O K ( B C B C F O R E C AST)
growth lie ahead. In our view, this ( A N N UA L % C H A N G E U N L E SS OTH E RW I S E I N D I C AT ED)
seems an ambitious and improbable
bet. More likely, the combination 2019 2020 2021f 2022f
of very high indebtedness and
chronically low productivity growth
Real GDP 1.7 -6.0 4.5 4.8
(in stark contrast to the post-war era) Employment 2.6 -6.2 5.2 3.2
indicates that Canada’s economy will
be more susceptible to future financial Unemployment rate (%) 4.7 8.8 6.4 5.2
and economic shocks. Housing Starts (000 units) 45.2 38.0 42.0 45.0
Retail sales 0.7 1.8 4.5 4.0
B.C. OUTLOOK: EXPORTS
B.C. CPI 2.3 0.8 1.8 2.2
AND CONSTRUCTION
SUPPORT GROWTH WHILE f - forecast
CONSUMER FACING Sources: Statistics Canada and BC Stats; BCBC for forecasts.
SERVICES RECOVER LATER
The near-term economic outlook
resume and accelerate as vaccines eased. B.C.’s tailored approach to
for B.C. is broadly similar to that
are administered in North America closing consumer-facing businesses
for Canada. Following the massive
and around the world. According should also help limit the downside.
COVID-induced demand shock in
to B.C.’s COVID-19 Immunization Many consumers and businesses
2020, the provincial economy will
Plan, vaccinations will be completed have adjusted to operating under
rebound and expand by 4.5% this
by the end of September. (As limited and restricted physical
year, just ahead of the Canada-wide
noted above, it is starting to look distancing conditions. The final
pace. In 2022 the B.C. economy
like disruptions in vaccine supply quarter of 2021 will see a more
should pick up a little more steam
will push back the target date.) As fulsome re-opening of consumer-
and grow by 4.8%, in line with Bank
of January 27, more than 124,000 facing businesses and, perhaps, a
of Canada’s expectation for Canada.
doses had been administered. This return to travel. Economic growth
These two-years of robust growth, first phase covered long-term care over the course of 2021 will also be
however, come after the steepest homes, health care workers and lifted by the return to full capacity
decline in GDP in a century. We other high-risk populations. Phase in the construction sector. All of this
estimate the B.C. economy 2 begins in February and covers assumes B.C.'s vaccination program
contracted by about 6% in 2020 on seniors aged 80 and over and other goes to plan.
an average annual basis. We estimate high-risk and vulnerable populations
the downturn was larger than for not immunized in Phase 1. In April,
Canada as a whole, owing in part the third phase shifts to the general EXPORTS HELPING THE
to B.C.’s oversized tourism and air population starting with persons RECOVERY
transportation industries, a much aged 75 to 79. Distribution continues B.C.’s diverse export sector is adding
larger film and television industry in 5-year increments down to 60 to the recovery. A projected 5.6%
(which was shuttered for part of years at the end of June, with the expansion in global output in 2021
the year), and the pull-back in our youngest adults (18-24) completing anchors a generally positive outlook
oversized construction activity. the vaccination process by the end of for most of the province’s export
The economy will struggle in the September. industries. Global trade has regained
first quarter of 2021 amid rising In the second and third quarters of its pre-pandemic level and continues
and elevated COVID cases and 2021 we expect economic growth to to rise. The fact that the U.S. suffered
temporary weakness in Canada pick up as restrictions are gradually a comparatively mild COVID-
and the U.S. But growth should induced recession and is growing
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REVIEW AND OUTLOOK FEBRUARY 2021
at a respectable clip is also positive. EMPLOYMENT REVIVES Following massive job losses
B.C.’s forest product exports are in March and April last year,
Following massive job losses in March
buoyant. An 8.4% GDP growth rate
and April last year, provincial job provincial job numbers (but
in China in 2021 – China is B.C.’s
second largest export market – is
numbers had mostly recovered by not hours worked) had mostly
the end of the year. As with Canada, recovered by the end of the
also good news for the province.
the COVID shock dealt unequal blows
year.
Activity in the film and television across the economy.
sector was hit when productions
Employment in tourism-related
were closed for a period in 2020. The hit to hours worked was larger in
sectors, food and accommodation,
Filming has resumed and again is an B.C. than in Canada. Nationally, hours
transportation, entertainment, and
important factor driving B.C.’s overall worked fell 8.7% for the full year.
personal services recovered to some
exports higher. The B.C. food and accommodation
extent in the second half of 2020, but
The weak spot in in B.C.’s export industry took the biggest hit,
the recovery lost momentum in the
base, of course, is international with hours falling by nearly one
latter part the year. Sluggish activity in
tourism. Even with vaccines and quarter. Even though construction
these industries is expected to persist
the expectation that the U.S. and has stayed open throughout the
well into 2021 (and perhaps beyond).
much of Europe will vaccinate their pandemic, hours worked in the
In contrast, the number of people sector fell 16% because of the need
populations much faster than Canada,
working in B.C.’s natural resource to physical distance on sites. The
we believe international travel will be
sector, manufacturing and in impact of scaled-back workforces
slow to recover. The industry suffered
professional and technical services and fewer hours worked was
a devastating blow in 2020. And
is up sharply since February. especially significant at large capital
the future is uncertain. There will be
Employment in the broad public sector projects. Many smaller projects were
pent up demand to resume travelling
has also increased over the past six postponed in 2020.
later this year if feasible, or perhaps
months with education reopening and
by mid-2022 (again, depending on
health care hiring for COVID testing
the actual vaccination rate). But the
and tracing. RETAIL ACTIVITY MOVES
recovery will probably take multiple
HIGHER
years. And it’s unclear when the The provincial unemployment rate
Canada-U.S. border will reopen, and currently sits as at 7.2%, well down Consumers have adjusted to
under what conditions. Meanwhile, from the 13.4% rate last spring. The distancing measures, reduced hours,
the number of international job market will be slower to heal and other impediments and are
visitors coming to the province for younger age cohorts with the out spending again in retail outlets
plummeted a staggering 97% in unemployment rate for persons below around the province. Sales in stores
2020. In downtown Vancouver hotel age 25 likely to stay above 10% for have rebounded. By November
occupancy was just 28% last summer much of 2022. retail spending was up around 10%
(it is lower today). Countries are year-over-year. With the exception
on different re-opening timelines of gas stations and clothing stores,
HOURS WORKED FELL even the hardest hit segments had
and the airline industry has been
SHARPLY recovered. Retail activity is expected
severely disrupted – with Canada
hit harder than most due to punitive In 2020 the total number of hours to remain solid in 2021, supported by
travel restrictions. Business travel – worked in B.C. plunged by 10%. This extraordinary government financial
including for conventions and large exceeded the 6% drop in employment transfers to households and also
meetings – will eventually rebound, because hours worked also captures because curtailed spending in areas
but it is unlikely to get back to its people who retained their jobs but such as entertainment, travel, and
pre-pandemic level for many years, worked fewer hours. The province also dining means consumers will realign
particularly since people have seen saw a significant rotation to part-time some spending to other parts of the
how digital communications saves employment during the shutdown. broad retail sector.
both time and money.
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REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 6: EX P ORTS TO U.S. HI G HER , BOOST E D BY F O R E STRY E X P O R TS
B.C. merchandise exports, SA, $billons B.C. merchandise exports, SA, $ billions
2.2 1.4
2.1 1.3
2.0
1.2
1.9
1.1
1.8
1.7 1.0
1.6 0.9
US
1.5
Rest of world 0.8 Forestry products
1.4
0.7 Energy products
1.3
1.2 0.6
Jan 17 Jan 18 Jan 19 Jan 20 Jan 17 Jan 18 Jan 19 Jan 20
Source: B.C. Stats. Latest data November 2020, seasonally adjusted, 3-month moving averages.
F IG URE 7: EMP LOYM EN T R ECOV ERY HAS P L ATE AU E D I N H A R DE R - H I T A N D M O D E R ATE LY- H I T I N D U ST RI ES
Employment* in “hard-hit,” “moderately impacted,” “growth industries”, and “public sector” Growth industries:
Indexed February 2020=100 - Agriculture
- Forestry, mining, natural gas
110 - Manufacturing
- Prof., scientific and tech serv.
105
Public sector:
100 - Health care (public)
- Education (public)
- Public administration
95
Moderately impacted:
90 - Transportation & warehousing
- Finance, Insurance & real estate
85 Hard-hit - Construction
- Wholesale and retail
80 Moderately impacted - Private Education
Hard hit:
Growth industries - Accomm. & food services
75 - Information, culture & rec.
public sector
- Business, building & support serv.
70 - Other services
- Private health care
65
2017 2018 2019 2020
Feb.
Latest: December 2020. *aged 15 and over, seasonally adjusted, 3-month moving averages up to 2020.
Source: Statistics Canada, Labour Force Survey. Table 14-10-0294-01.
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REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 8: TOTA L N U M BER OF HOU R S WOR KE D I N B .C . F E L L 1 0 % I N 2 02 0
Total hours worked by industry, 2019-2020 % change
10
9.5
5
0
-0.1 -3.3
-1.7 -1.8
-5
-6.7
-10 -7.8 -8.5
-10.1 -10.1 -10.6
-15 -13.0 -13.5
BC Canada -16.2
-20 -19.0
-25 -22.8 -23.0 -23.8
-30
-35
Agri- Public Prof., Finance Mfg. Health Edu- Goods- Whole- ALL Services- Trans- Forestry, Other Info. Business, Accom.
culture admin. sci. & ins. & care cation prod- sale INDUS- prod- port. mining, Con- services & building &
& tech. real ucing & retail TRIES ucing & ware- oil struction cultural & other food
serv. estate sector trade sector housing & gas ind. serv. serv.
Source: Statistics Canada, Table 14-10-0036-01.
F IG URE 9: CONSUM ER S R ET U R N TO B.C . STOR E S
B.C. retail sales SA, millions $
8500
Thousands
8000
7500
7000
6500
6000
5500
5000
15 16 17 18 19 20
Source: Statistics Canada, Table 20-10-0008-01. Latest: November 2020. SA = seasonally adjusted.
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REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 10: MOST SE G M EN TS OF R ETA I L HAV E R E COV E R E D. . .
B.C. retail sales, y/y % change
30
10
-10
-30
-50
-70 May June July August Sept. Oct Nov
-90
Retail trade - Motor Gasoline Clothing Furniture & Food & Building General Electronics &
total vehicle and stations stores home beverage material & merchandise appliance
parts dealers furnishings stores garden stores stores
stores equipment
supplies
Source: Statistics Canada, Table 20-10-0008-01.
F IG URE 11: ...BUT FOOD SERV I C E SA L ES ST I L L W E L L B E LOW P R E - PA N D E M I C L E V E L S
B.C. food service sales, SA, $millions B.C. food service sales by segment, y/y% change
1200 10
1100 0
1000 -10
900 -20
800 -30
700 -40
600 Food services and -50 Full-service
drinking places Limited-service eating places
500 -60
400 -70
300 -80
Jan 17 Jan 18 Jan 19 Jan 20 Jan 17 Jan 18 Jan 19 Jan 20
Source: Statistics Canada, Table: 21-10-0019-01. Latest: November 2020. SA = seasonally adjusted.
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REVIEW AND OUTLOOK FEBRUARY 2021
F IG URE 12: N ON -RESI D EN T I A L P ER M I TS HAV E H E L D U P I N N O N - ME TR O A R E AS
Non-residential building permits, B.C. metro Non-residential building permits, B.C.
areas*, millions $ excluding metro areas*, millions $
550 180
500 160
450
140
400
350 120
300 100
250
80
200
60
150
100 40
Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20
*Vancouver, Victoria, Abbotsford and Kelowna.
Source: Statistics Canada . Table: 34-10-0066-01. Latest: December 2020. 6-month moving averages.
F IG URE 13: P ROVIN C I A L HOU SI N G STA R TS R ELATI V E LY STA B L E I N TH E WA K E O F TH E PA N D E M I C
B.C. housing starts, 000s
60
seasonally adjusted annual rates
50
3 month moving average
40
30
20
10
08 09 10 11 12 13 14 15 16 17 18 19 20
Source: Statistics Canada, Table: 34-10-0158-01. Latest: December 2020.
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REVIEW AND OUTLOOK FEBRUARY 2021
Despite a solid growth B.C.’s large residential construction CONCLUDING THOUGHTS
outlook, it will still take time sector will also support growth in
Considering the damage reaped in
2021. The reduction in mortgage
for the provincial economy to 2020, the B.C. economy could post
rates to near-record lows is good for
fully heal. Much depends on affordability (although the benefit
a solid growth performance over
the path of the virus the next two years. However, as for
has largely been offset by rising
Canada, the timing of the economic
prices for single family homes).
recovery hinges on the timing for
Although residential home sales
vaccine delivery, which is racing
were initially curtailed because of
HOUSEHOLD SPENDING against the spread of the virus and
COVID, later in the year sales activity
ON SERVICES SLOWER TO the B.1.1.7 variant. B.C. has enjoyed
climbed to record highs. While sales
RECOVER a comparatively strong rebound in
may stabilize in 2021, the level of
employment. The province’s export
Retail spending has posted an activity will remain elevated and
and construction sectors are leading
impressive revival but some parts housing starts should pick up from
the recovery as spending on high-
of household consumption will not 2020. The provincial government
contact services remains restricted.
regain pre-crisis levels until large is expected to continue with its
The drop in interest rates has spurred
gatherings are allowed (e.g., sporting affordable housing programs
activity in the residential real estate
events, concerts, conventions, which will further add to new home
sector, which should translate into
casinos, and some other services are construction over the forecast
more home building in the coming
reopened). In-house dining is still horizon.
years.
operating at around 50% capacity
and recently (November) restaurant Despite a solid growth outlook, it
sales fell again. IMPACT OF FISCAL AND will still take time for the provincial
MONETARY POLICY STIMULI economy to fully heal. Much
In response to the pandemic’s depends on the path of the virus,
CAPITAL INVESTMENT AND the impact of new strains, the pace
economic disruption, the federal
CONSTRUCTION PROVIDE A of vaccinations, and how businesses
government delivered hundreds of
BOOST IN 2021 and consumers respond to what
billions of dollars in financial support
Construction has long been a key to households and businesses while remains a complex and uncertain
B.C. economic engine and that is set the Bank of Canada slashed its economic environment. There are
to continue. In the five years to 2019, policy interest rate and engaged significant risks to our baseline
construction registered the strongest in unprecedented “quantitative forecasts. It is starting to look likely
average growth performance of easing” by directly purchasing that Canada, and therefore B.C.,
any major industry group. In 2019, government-issued debt. Overall, could lag other advanced countries'
construction of large capital projects Ottawa has done the lion’s share vaccination rates by about 6 months.
accounted for more than half of of the fiscal heavy lifting in the That would mean herd immunity
all economic growth. Construction past year. However, provincial and a return to normal activities
will continue to make an outsized governments, including in B.C., also is not possible by the end of 2021
contribution to growth in B.C. Non- stepped forward with significant as curently expected. Rather, this
residential building permits reached measures aimed at shoring up would take place by mid-2022, in line
record highs in 2019 and have stressed health care systems and with the timing for emerging market
generally held up well during the assisting households and firms. economies. For B.C., another key
pandemic. Fiscal stimulus will boost With the bumpy economic recovery unknown is how quickly the battered
non-residential construction over the now underway, we anticipate that tourism sector springs back to life
next two years as governments look governments will continue to invest after a truly disastrous 2020.
to advance various capital projects in infrastructure and move only Looking further ahead, government
to boost the recovery and “green” gradually to unwind the extraordinary policy risks have also emerged as
the economy. spending programs adopted in 2020. factors that could weigh on the
Where Leaders Meet to Unlock BC’s Full Potential | www.bcbc.com 12B.C. ECONOMIC REVIEW AND OUTLOOK FEBRUARY 2021 broader business environment and affect the outlook for investment. The tax burden for business and high-skilled earners in B.C. (and Canada) has increased and is now higher than in most competing jurisdictions. The increasing array of new, complex and costly regulations is making it harder for many firms to justify deploying fresh capital to the province. Canada’s recent decision to sharply boost carbon taxes over the next decade could speed the decline of some natural resource and manufacturing industries that are sensitive to the cost of energy. More generally, both Canada and B.C. have entered an era of activist and expanding government. In this setting, policymakers need to be alert to waning competitiveness and pay attention to the province’s ability to attract private sector capital investment dollars and qualified talent. CO-AUTHORED BY Ken Peacock, Chief Economist & Senior Vice President David Williams, DPhil, Vice President of Policy Where Leaders Meet to Unlock BC’s Full Potential | www.bcbc.com 13
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