Growth could be slowed by higher energy prices, disruption in foreign markets
Michael Kane
Sun
British Columbia‘s economy will continue to post robust growth in the 3.5 to 4.0 per cent range through 2006, according to the province’s Credit Union Central.
The only clouds on the horizon are from afar — the threat of higher energy prices pushing down global growth and commodity prices, or a major disruption in foreign exchange markets resulting from the U.S. trade deficit. Supporting above-average growth in B.C. are low interest rates, higher investment spending, export strength in some sectors, rising in-migration, and improved business and consumer confidence, Helmut Pastrick, the central’s chief economist, said.
That view is largely endorsed by economists at both the Business Council of B.C. and the left-leaning Canadian Centre for Policy Alternatives, although both caution that the U.S. slowdown could be sharper than expected and hurt Canada.
“Helmut is at the upper end of Canadian forecasters for B.C. but I agree with his analysis,” said Jock Finlayson, the business council’s executive vice-president. “It is a pretty good picture over-all and certainly the strong momentum that we have seen in the province is going to continue.”
In addition to U.S. concerns, Marc Lee, Vancouver-based economist for the CCPA, questioned whether the benefits of growth are reaching increasingly indebted low and middle-income earners who would suffer most if the economy sours.
“Over-all I agree with a lot in the forecast,” he said. “Certainly the economy has continued to improve through 2005.”
A strong rebound in business investment –14 per cent this year and 12 per cent in 2006 — is the prominent feature in Thursday’s forecast.
Pastrick said imports of machinery and equipment, largely from the U.S., are being driven by strong market conditions in some industries, the increased buying power of a stronger loonie, and last year’s record corporate profits of $16.7 billion, a 33 per cent jump over 2003.
While business investment should help the province to close its productivity gap with the rest of the country, he cautioned that imports are pushing the province’s trade balance deeper into deficit, rising to more than $10 billion by the end of 2006, up from $6.9 billion last year. B.C. last had a trade surplus in 1988.
“It is a minus and it does subtract from over-all growth,” Pastrick said in an interview. “Any time we have money essentially leaving the economy, that’s less money that can be spent here.”
Nevertheless, he anticipates 3.6-per-cent growth this year and 3.9 per cent next year and says it could surpass 4.0 per cent in both years if exports do better than expected.
While Lee notes that hourly wages actually dropped in 2004, Pastrick sees employment and hourly earnings growing at about three per cent both this year and next.
Most industry sectors will post fairly robust growth, he said, with coal and metal mining, construction, retail and wholesale trade, professional and business services, and wood manufacturing leading the pack.
The fishing, hunting and trapping sector is projected to decline, and slow growth is anticipated in education services, pulp and paper and accommodation and food services.