BC economy

B.C.'s economy is heading toward its first annual contraction in more than 25 years, with economic growth expected to decline by 1.5 per cent in 2009, according to a provincial forecast released Thursday by the Royal Bank of Canada.

"The key drivers for B.C. [before the economic downturn] were a strong global trade environment, firm commodity prices and sizeable investment activity," Craig Wright, senior vice-president and chief economist for RBC, said in an interview. "But now, we're seeing weak global growth, weak commodity prices, a winding down of investment activity and a sharp slowdown in housing.

"It's a similar story across all of Canada. B.C. is at the weaker end of the list."

Wright said the swiftness with which the province's housing sector, labour market, consumer spending and capital investment have deteriorated in recent months has thwarted prospects that a global recovery later this year might offset the province's near-term slump.

He said B.C. consumers have reined in spending and that retail sales were dismal over the last few months, particularly over Christmas.

The report -- which said the Canadian economy as a whole will decline 1.4 per cent in 2009 -- also noted that the development of the province's natural gas industry is losing momentum.

The report predicted that B.C.'s unemployment rate would rise to 6.8 per cent in 2009 -- lower than the Canadian rate of 7.8 per cent -- and noted that the labour market lost 35,000 jobs in January, the largest drop ever recorded in B.C.

"The employment situation has been deteriorating rapidly in the last few months," Wright said. "The job market has recorded its longest losing streak [September 2008 to January 2009] since 1986."

He said the situation has degraded faster than anticipated and the B.C. economy is not expected to show significant improvement until 2010.

According to the report, resale activity in the province's housing sector in recent months reached its lowest levels on record, dating back to the mid-1980s, and downward pressure on prices has intensified. Demand for new residential units has been scaled back, with February housing starts falling to their lowest point since early 2002.

Add the winding down of Olympic-related infrastructure building, and capital investment will soften considerably in 2009, the report added. Fiscal stimulus from increased public spending on infrastructure, announced in both the federal and provincial budgets, will provide some relief, but the impact will be limited.

Despite that, the report said next year's outlook is brighter, with 2.9-per-cent projected growth, as the stimulative effect of increased public infrastructure spending will be enhanced by improving global economic conditions, a gradual recovery in commodity markets, more positive external trade, and the expected run-up in tourism spending with the 2010 Olympics.

"If we're right, B.C. will be the strongest province in 2010," Wright said.

RBC's outlook for 2009 is somewhat gloomier than that of the provincial finance ministry, which expects the economy to shrink by 0.9 per cent in 2009. It sees a rebound to growth of 2.4 per cent in 2010 and 2.6 per cent annually to 2013.

The RBC report noted that a weaker economy will dampen activity coast to coast in 2009, with all provincial economies except Saskatchewan, Manitoba and Nova Scotia forecast to contract. Alberta is expected to see the largest contraction at 2.3 per cent this year, followed by Ontario's 1.9 per cent and then B.C.'s 1.5 per cent.

(prepared by Brian Morton/Vancouver Sun re "BC economy to decline 1.5 per cent in 2009, bank economist predicts")