Housing starts apt to jump in 2010

The 2010 Olympics, the domestic housing market and an improved global appetite for resources will make British Columbia one of Canada's strongest provincial economies next year, according to a new report from RBC Economics.

RBC anticipates 3.2 per cent growth for the B.C. economy for 2010, compared to a 2.6 per cent decline in 2009.

A commodity outlook by Scotiabank recently forecast modest recovery in the resource prices that are fundamental to B.C.'s economic health and the Business Council of B.C. is also cautiously optimistic.

"As Vancouver gets ready to host the world's biggest winter sporting event in February and March, British Columbia's economy is set to enjoy a burst of economic activity that will help it move onto a recovery path in 2010," says a provincial outlook report released Monday by RBC.

"This economic tonic could not come soon enough for a province that has been hit hard by the recession," RBC said, projecting B.C. to end 2009 with a 2.6 per cent economic contraction that will be its worst performance since 1982.

"The most striking development has no doubt been the stunning rally in sales of existing homes since reaching a multi-decade low early in 2009."

Exports, which are fundamental to the province's resource-based economy, are also expected to improve.

"The key forest products sector should finally begin to emerge from its deep slump as the U.S. housing sector is on a healing course. Stronger global demand for other commodities, such as metals and coal, and further development of natural gas fields in the province should also contribute to a boost in merchandise exports."

RBC's forecast of 3.2 per cent growth in B.C. in 2010, is the second fastest rate among provinces after Saskatchewan.

Two weeks ago, Scotiabank commodity analyst Patricia Mohr noted a modest price rally for Canadian natural gas exports to the United States, but suggested that the industry will need to cultivate new markets if it wants to bolster demand.

Mohr said that China has built up a substantial reserve of a major B.C. export, copper, but said that global hedge funds "still believe there is good value in commodities as an asset class."

She foresees increased prices next year for another key B.C. export, metallurgical coal, and also took note of increasing newsprint prices as well as the opportunity for Canadian lumber producers to boost prices in the Japanese market as an indirect consequence of a declining U.S. dollar.

Jock Finlayson, executive vice-president of the Business Council of British Columbia, said the council's expectations for B.C. in 2010 are similar to those of RBC.

However, he said some forest companies expect a weak year, and he said natural gas won't cause a flood of royalty dollars into the B.C. treasury as happened three years ago when prices hit a peak.

"There are still some uncertainties and risks as you will always have. The risks are perhaps even more pronounced than normal, because of the shock to the world economy, and to the U.S. housing market, and the financial system," Finlayson said.

"The people I talk to in the [forest] industry here are super, super cautious about 2010. They are really looking frankly, in the lumber business, past 2010 to see a material improvement in markets.

"That's because, although U.S. housing will go up in 2010 after a very weak year this year, they are not expected to go up very much. You are just talking about a couple of hundred thousand additional starts on top of the 500,000 or so we saw this year. That's an improvement but it's an awfully modest improvement."

Finlayson calculates that the B.C. economy shrank between 2.5 per cent and three per cent in 2009, "with the vast majority of that in the first two quarters when the world economy fell off the cliff.

"For next year we are anticipating growth of somewhere between 2.5 and three per cent positive," he said.

"The Olympics clearly contribute to that. In the first quarter [of 2010] it's clearly fortuitous timing to get that extra boost to spending in the B.C. economy."

Finlayson anticipates housing starts will jump from this year's total of about 14,000 to around 20,000 in 2010.

He said the federal government's two-year economic stimulus plan "will continue to roll out in 2010" -- and that will be supportive of employment and a higher level of economic activity than we would see if we didn't have that stimulus."

One of the bigger question marks for B.C. is the trade sector, notably the ratio of imports to exports.

"I think there will be some pickup in exports next year but we are going to have a pickup in imports too. So the question is, which grows faster. If imports grow faster than exports, as I suspect they will, then actually trade will subtract from growth next year.

"So I'm not looking for much strength in net trade for the province in 2010 but I do expect to see an appreciable improvement in domestic demand and that will obviously be welcome."

("B.C.'s economy will be one of Canada's strongest in 2010: report" prepared by Scott Simpson/Vancouver Sun)