PROVINCIAL OUTLOOK | MARCH 2014

British Columbia
Shifting gears

British Columbia home resales

Thousands of units, SAAR, quarterly 120 100 80 60 40 20 0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: The Canadian Real Estate Association, RBC Economics Research

British Columbias economy is set to shift to a higher gear in 2014 following two years of middling growth. Although modest, the performance in 2013, nonetheless, contained elements that we believe will rev-up the provincial growth engine this year. Chief among them are the gains made in export markets, which we expect will grow further in 2014 and generate spill-over effects benefiting domestic-oriented industries. The turnaround in the BC housing sector also is a positive development last year that, by restoring confidence in the market, will help lift a great deal of the uncertainty that was likely holding back household spending. We forecast real GDP growth to shift higher from the subdued 1.5% rate recorded in the past two years to a more respectable rate of 2.1% in 2014. The outlook is even brighter for 2015 with growth accelerating to 2.8%, provided that work on some liquefied natural gas (LNG)-related projects ramps up. Exports emerge as a bright spot Overall, the BC economy remained stuck in a low gear in 2013, restrained in part by stagnation in household-dependent sectors. One section of the economy that displayed some dynamism, however, was external trade. BC merchandise exports advanced solidly by almost 7% (on a nominal basis) last year, with substantial gains in the provinces two principal export marketsthe US (up 12%) and China (up nearly 15%). There were substantial increases in most of the provinces key export commodities, including wood products (up 26%), metallic mineral products (up 11%), and natural gas (up 29%). We expect that further strengthening of the US economyand, in particular, housing construction and deeper penetration of the Chinese market will continue to drive BC exports higher in 2014. Stronger sales abroad primarily will fire up BC resource industries, such as forest products and mining, but also spread benefits to other sectors ranging from manufacturing to business service industries. Returning confidence bodes well for consumer spending Success on the external front will be positive for the job market. After standing still last year, we project employment to rise by 0.8% this year, which would be sufficient enough to nudge BCs unemployment rate downward from 6.6% in 2013 to 6.4% in 2014. The resumption of job creation, easing in the jobless rate, and the fact that the provincial housing market ended its slide last year will instil greater confidence in BC household to go out and spend. We, therefore, expect stronger consumer spending in 2014 compared to the lacklustre growth in retail sales in the past two years. LNG tax rules announced; little economic impact this year In its February budget, the BC government announced its long-awaited tax rules for future LNG projects with final details to come later this fall. At this stage, we expect only minimal short-term activity from these projects, as they still need final approval from proponents. Statistics Canadas latest P&PI survey indeed showed no signs that LNG projects featured prominently in capital spending plans in the province in 2014; in fact, it revealed a decline of 1.5% in nonresidential outlays, including a 3.7% drop in the oil and gas industry. We expect more meaningful LNG spending to begin in 2015, although any large-scale investment likely is still years away.

British Columbia non-residential investment

Billions $ 35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014*
*2013=preliminary actual; 2014=intentions Source: Statistics Canada, RBC Economics Research

British Columbia forecast at a glance

% change unless otherwise indicated

2011 Real GDP Employment Unemployment rate (%) Retail sales Housing starts (units) Consumer price index 2.7 0.8 7.5 3.2 26,400 2.3

2012 1.5 1.7 6.7 1.9 27,465 1.1

2013F 1.5 -0.2 6.6 1.8 27,054 -0.1

2014F 2.1 0.8 6.4 3.6 25,800 0.9

2015F 2.8 1.1 6.3 3.7 24,000 1.7

Robert Hogue Senior Economist

ECONOMICS | RESEARCH