Central 1 deputy chief economist Bryan Yu was the opening speaker at the CanaData West economic forecasting conference, held October 11 at the Terminal City Club in Vancouver.
Yu began by stating British Columbia is "doing phenomenal regarding the economy, and the outlook going forward is positive."
The global economy is in a pretty good position, Yu said, and added Purchasing Managers Indexes statistics point to economic activity firming up on a global scale.
More importantly, he said, there is synchronous growth in the United States, Europe, Japan and China.
The global economy hit a roadblock with Brexit and a dip in oil prices in the previous few years, and the current stabilization is due to growth in China, Yu said.
China is shifting from an export-based economy to a more consumer-centric model, which has slowed growth from its record highs but is still a steady and solid growth rate. The shift to a consumer economy has helped drive global demand.
Resources have shown an incremental uptick, Yu said, but one cause for concern is inflation, which may creep upward in 2017. However inflation rates are still quite low, he said, and even with rate hikes in the United States and Canada, the overall trend for the next few years is a low inflation rate.
United States Gross Domestic Product (GDP) has picked up slightly and the overall feeling Is that demand will continue to climb upward in the US, he added. Unemployment rates are also dropping, even with blips such as recent crisis-level weather events such as Hurricane Harvey.
However wage growth in the United States is still relatively low, he cautioned, and "we don't think there's strong upward pressure on interest rates in the current time."
Forecasters estimate three interest rate hikes through the end of 2018, Yu said, which portends a modest recovery.
"we have at least a couple of years of growth going forward before substantial rate hikes," he said.
Uncertainty regarding the United States and global economy include trade risks such as changes in the WTO and NAFTA, as well as fiscal stimulus and tax measures in the Us affecting Canada.
"And North Korea is trigger happy," Yu said, pointing to another trouble spot for the economy.
Canada has done very well, he said, with GDP tracking "well over three per cent," and an expectation of a strong year for Canada given the strong growth in the first half of the year.
Canadian growth has been above both the G7 and the U.S. in terms of growth rate since mid-2016, driven primarily by consumer behavior and residential investment. However, the residential component is largely restricted to Ontario, Yu said, thanks to policy changes at the provincial level.
Fiscal stimulus has been an ongoing boost for the economy, he said, but that bump is starting to slow. There have been uneven improvements in exports, and recently there has been a deceleration in demand for good going to the U.S.
But Canada is closing the output gap, with a strong growth profile, Yu said. New Bank of Canada inflation measures are turning upward, he added.
"Our view is they will hold off until maybe the second quarter of 2018 for the next rate hike," Yu said.
The dollar is moving upwards on the economy and rates, and has split off from oil prices, he said.
"We expect it to come back and hold in an 80 to 82 cent range," Yu said.
The key Canadian indicators, Yu said, are Canada's real GDP, climbing employment numbers, and a falling unemployment rate.
The B.C. economy is in "great shape," Yu said, with job growth strong and consumer demand up on job growth, wages, population and housing.
"B.C. is the 'bright light' for Canada's economy," he said.
Consumer demand is driving retail sales, outpacing the rest of Canada.
"It's not only a Vancouver story, it's also an island and southern interior story," he said.
The B.C. export cycle is also a growth driver, but "we should be careful," Yu said, given some growth is due to conversion from Canadian to U.S. dollars. What's driving this growth is the energy sector, he said, with natural gas production up 20 per cent.
B.C. employment is outpacing the national employment rate, Yu said, and "people are coming from other areas and finding jobs," he added.
Vancouver is seeing employment growth, but Victoria and especially Kelowna are seeing very strong growth.
Kelowna's growth is due to not only strong population growth within the region but also work on surrounding major projects. Residential construction is a substantial labour growth driver generally in B.C.
Population growth in B.C. is less due to international intake and more due to interprovincial migration, especially from Alberta. Migration from Alberta has declined from very high levels in previous years but continues at a relatively high rate.
The housing market is slowing, but is still elevated, Yu said. Current levels are still very high, "and there was no real housing bust," Yu said.
Non-residential investment has been a weak link this year, he said, with a decline in building permits and levels well below pre-recession numbers. The weakness of the mining secor is a factor, as are changes in retail, such as Sears announcing liquidation. Bigger stores are being replaced by smaller boutique stores like Uniqlo, Yu said.
Commercial construction has also slowed from previous levels in Vancouver, he said.
Going forward, consumer demand remains a key driver, with housing steady and export growth to continue. Government spending will be a lift to expenditures and fiscal stimulus will be positive for investment, Yu said.
Migration will likely swing back to international flows, Yu said, because of changes to federal government immigration policy encouraging high-skilled immigrants.
Yu also pointed to LNG projects that were cancelled and said "we'll see how many more we cross off as time goes on."
Higher interest rates will not only constrain the market but will make it more difficult for first time buyers to enter the market, but on the upside the completion of a high number of units should sooth the market somewhat, Yu said.
"There's huge supply constraints in the housing market right now," Yu added.