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

Just Posted

North Island Seniors Housing Foundation takes the next step towards getting Trustee Road land

Seniors rejoice, Port Hardy council is very much in favour of helping… Continue reading

Port Hardy Volleyball club requests funding from Port Hardy council

The sport of Volleyball is alive and well in the North Island,… Continue reading

Should aquaculture programs be offered at North Island College in Port Hardy?

“I think it would be very timely to have an aquaculture program”

Island Health issues press release regarding Port Alice Health Centre service changes

Island Health will be hosting a community meeting in Port Alice Feb. 20 at 6 p.m. in the rec centre.

Vancouver Island Regional Library wants to team up with the Town of Port McNeill to build a new multi-use facility

“A new library for the town, as you know, will quickly become an exciting hub of literacy”

B.C. students win Great Waters Challenge video contest

Video, mural and song about saving the salmon claims the top prize

Eight cases of measles confirmed in Vancouver outbreak

Coastal Health official say the cases stem from the French-language Ecole Jules Verne Secondary

Ontario police field complaints over Amber Alert for missing girl, 11, found dead

Some said the Amber Alert issued late Thursday for Riya Rajkumar disrupted their sleep

Former B.C. premier Gordon Campbell accused of sexual touching

Accuser went to police, interviewed by Britian’s Daily Telegraph

B.C. couple attacked with acid, slashed with knife in Vietnam

Warning, graphic images: Man has burns on 80 per cent of his body, slashed with knife

Northern B.C. First Nation clan says ancient tools found at pipeline work site

Archeologists from the Smithsonian Institute estimate one of the stones found dates back up to 3500 years

Names keep adding to vaccine petition started by B.C. mom

Maple Ridge mom started campaign to make vaccination a condition of attending school

Wilson-Raybould resignation stokes anger, frustration within veterans community

Liberals have had three veterans-affairs ministers — Kent Hehr, Seamus O’Regan and Wilson-Raybould

Most Read