2015 Canadian Construction Overview Graphic


BLOG: Economist Bryan Yu at CanaData West

0 207 Economic

by JOC News Service

Central1 senior economist Bryan Yu was the first speaker at the CanaData West conference, held at the Terminal City Club in downtown Vancouver on September 27.
BLOG: Economist Bryan Yu at CanaData West

Yu began by looking at the effect of the global economy on both Canada and British Columbia before drilling down to examine the Metro Vancouver economy and housing market.

Globally, Yu said, the economy is in a slow-growth phase, with shocks hampering growth.

"Every year we give presentations and expect things to get better, and they gradually are, but there are shocks to the global economy as well," Yu said.

Some of these shocks include a slowdown of China growth and the recent tumble in oil prices. The International Monetary Fund, Yu said, projects three to four per cent growth in the overall economy in 2017. This will likely continue until the end of the decade.

There are also declining interest rates on growth, as well as Brexit concerns putting downward pressure on the economy, Yu said.

We aren't worried about a significant spike in rates at this time," Yu said, and added that the UK and Europe experience "hasn't been as bad as expected, but we don't know what the ultimate fallout will be."

Stronger growth will be in the U.S., he added, which after a soft patch has shown moderate improvement.

Domestic demand in the U.S. has been quite strong, and that will drive a 2.5 per cent growth, which isn't fantastic but is solid growth, he noted.

Job growth is also trending in the U.S., but at a decelerated pace, he said. There's a low unemployment rate and inflation is rising.

"There's pent-up demand in the U.S. economy going forward, and housing prices are on the rie, whichis a key indicator of the broader economy," he said.

Canadian growth slumped in Q2, thanks to Fort McMurray wildfires and declining oil investment. But the numbers are improving, he said, and he expects to see a 3.5 per cent annualized growth rate thanks to oilsands operations coming back online along with more generalized economic growth.

"However that will be a bump, and we have to recognize that the economy will still be in a slump," he said.

The overall picture in Canada, Yu noted, is that non-commodity exports and domestic exports are growing while commodities falter. He expects oil prices won't surge anytime soon, with only a mild uplift forecast.

The U.S. is also now an oil exporter, which is another limit for price growth. Over the next two years, Yu estimated, the overall oil price will likely hover around $55 per barrel.

Large greenfield projects in Alberta are uneconomical at this time, he said, and "while we don't expect things to get worse, they likely won't get better."

Export growth is a drag on the economy, led by resources, but also because manufacturing has shifted from Canada to Mexico, and isn't coming back. However the vehicle and parts sector is showing growth, he noted.

Yu said he diesn't see a rate hike from the Bank of Canada through 2018, though a rate cut is a risk. The Canadian dollar will likely go down to 75 cents, and if the Fed raises its rates there could be further downward pressure.

There is a wide disparity in growth across Canada, Yu said, depending on location. Alberta and Saskatchewan have seen a decline thanks to their dependence on energy, but B.C. is an economic growth leader in Canada, pegged at 3.5 per cent growth currently and 2. Per cent next year.

The drivers of B.C. growth are exports lifted by the U.S. growth cycle, a low Canadian dollar which drives both the TV/film and tourism industries, and manufacturing. Tourism numbers are actually at their highest ever, Yu said.

The divide in the Canadian economy favours B.C. and Ontario, with B.C. "heads and shoulders above everyone else," Yu said. In retail, B.C. is also doing well, led by Metro Vancouver. Exports have only grown one per cent, but that has a lot to do with commodity prices, Yu said.

"We're seeing in B.C. not only a consumer driven economy but a low dollar is helping to lift growth as well," Yu said.

Forestry activity is on an upswing with export demand, but there is some risk going forward from the expired Soft Wood Lumber agreement.

Growth is also attracting individuals to the province, Yu said, with net migration to B.C. rising, particularly from Alberta. "People go to greener pastures where they can find work," Yu said.

B.C. housing is also up this year, not only in Vancouver but also in Kelowna and Abbotsford-Mission. Non-residential investment is tending lower in 2016, but industrial activity is up 20 per cent.

The commodity price profile for northern B.C. is challenging, because LNG projects will likely not go forward until later than previously expected. However, there are positive signs for coal and forestry is steady, Yu said.

Resource capital investment remains sluggish, and support activity is declining. The mining industry will be a drag on overall growth, he said.

Due to government policy, it will be a significant adjustment year for the housing market due to government policy. There will also be a mild decline in demand, Yu said. Consumer and housing demand will be growth drivers in 2017 but will slow down past that.

Housing trend analysis pointed to overheated demand early in the year, but a confidence shock is freezing the market. The foreign buyer tax may have a temporary effect, but foreign buyers who want B.C. property won't be stopped by a 15 per cent tax, Yu said, with the exception of speculators, who will likely exit the market.

Market conditions are still solid, but decelerating. Detached home sales are leading sales into a downward sales cycle, but multi home dwellings such as condominiums are solid.

Supply inventory in the market is low, which means a crash is unlikely, Yu said. The healthy state of the economy also means people are less likely to need to sell their home, Yu said. New home inventory is "crushingly low," and vacancy rates are low, meaning the market is tight. Land base is also tightly constrained, and the only way to deal with a desire to live in urban areas is to build up, rezone, or both.

Complex factors such as low interest rates, strong local economic growth and land policies all affect housing prices, Yu said. Population is on the rise in Metro Vancouver, and millennials are starting to look at purchasing homes.

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